POVERTY: its ILLEGAL CAUSES and LEGAL CURE. PART FIRST.

Lysander Spooner,
The Shorter or!s and Pa"ph#ets o$ Lysander Spooner %o#. I &'()*+'(,'- ./0'01
Poverty: Its Illegal Causes and Legal Cure. Part First.

Chapter I.: Illegal Causes of Poverty.
Chapter II.: Economical Propositions.
Chapter III.: Economical Results From the Preceding Propositions
Chapter IV.: Social !oral Intellectual and Political Results From the Preceding
Propositions.
Chapter V.: "he Legal #ature of $e%t.
Chapter VI.: "he Legal #ature of $e%t.&' Continued. (

C)*P"ER I.
ILLE+*L C*,SES -F P-VER"..
"he e/isting poverty 0ould %e rapidly removed and future poverty almost entirely
prevented a more e1ual distri%ution of property than no0 e/ists accomplished and the
aggregate 0ealth of society greatly increased if the principles of natural la0 and of our
national and state constitutions generally 0ere adhered to %y the 2udiciary in their
decisions in regard to contracts.
"hese principles are violated %y the 2udiciary in various 0ays to 0it:
3. In a manner to uphold ar%itrary and unconstitutional statutes against freedom in
%an4ing and freedom in the rate of interest5 thus denying the natural and constitutional
right of the people to ma4e t0o classes of contracts 0hich 0ill hereafter %e sho0n to %e
of vital importance %oth to the general increase and to the more e1ual distri%ution of
0ealth.
6. In a manner to e/tend the o%ligation of certain contracts %eyond their natural and
legal limit and hold men lia%le to pay de%ts no longer due5 there%y condemning large
num%ers of men to perpetual poverty and destitution %y ma4ing their e/pired de%ts a
%urden upon their future ac1uisitions and an o%struction to their o%taining credit for the
capital necessary to the successful employment of their industry.
7. In a manner to reduce the o%ligation of the contracts of corporate %odies %elo0 their
natural and legal limit and thus ena%le the privileged de%tors 0ho have the means of
payment to 0ithhold payment of de%ts actually due and ma4e themselves rich %y
ma4ing others poor.
8. In a manner to deny the legal rights of creditors relatively to each other in the
property of their de%tors5 ena%ling and in cases of insolvency compelling de%tors to
s0indle one portion of their creditors for the %enefit of another5 ma4ing it impossi%le
for capitalists to determine 0ith any reasona%le accuracy the value of personal security
for loans5 rendering it unsafe for them to loan capital at all to mere la%orers5 and thus
preventing the natural and more e1ual diffusion of credit among all those poor men
0ho are in 0ant of capital upon 0hich to %esto0 their la%or and 0ho for the 0ant of
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such capital are compelled to sell their la%or to others for a price much %elo0 the
amount of its actual products.
"hese erroneous decisions of the 2udiciary are made in some of the cases in o%edience
to ar%itrary and unconstitutional legislation5 in others through ignorance of the natural
la0 applica%le to contracts 0here no special legislation has %een had.
It 0ill %e the o%2ect of the follo0ing essays to esta%lish the illegality of these various
decisions and to e/plain their effects in o%structing the increase and more e1ual
distri%ution of 0ealth.
9ut %efore proceeding to any legal discussions let us state certain economical
propositions that are o%viously conducive if not indispensa%ly necessary to the
greatest aggregate increase and most e1ual distri%ution of 0ealth that can %e
accomplished consistently 0ith the natural right of each man to the control of his o0n
property. )aving stated these propositions 0e 0ill then see 0hether those principles of
natural and constitutional la0 0hich our 2udiciary are %ound to adhere to 0ould secure
the esta%lishment or reali:ation of the propositions themselves.
C)*P"ER II.
EC-#-!IC*L PR-P-SI"I-#S.
Proposition 3. Every man&so far as consistently 0ith the principles of natural la0 he
can accomplish it&should %e allo0ed to have the fruits and all the fruits of his o0n
la%or.
"hat the principle of allo0ing each man to have 'so far as it is consistent 0ith the
principles of natural la0 that he can have( all the fruits of his o0n la%or 0ould
conduce to a more 2ust and e1ual distri%ution of 0ealth than no0 e/ists is a proposition
too self;evident almost to need illustration. It is an o%vious principle of natural 2ustice
that each man should have the fruits of his o0n la%or5 and all ar%itrary enactments %y
governments interfering 0ith this result are nothing %etter than ro%%ery. It is also an
o%vious fact that the property produced %y society is no0 distri%uted in very une1ual
proportions among those 0hose la%or produced it and 0ith very little regard to the
actual value of each one<s la%or in producing it. *nd this fact is not the result&e/cept
in a partial degree&of the superior mental capacities 0hich ena%le some men
consistently 0ith honesty and fair competition to compass more of the means of
ac1uiring 0ealth than others5 %ut it is the result in a very important measure of
ar%itrary and un2ust legislative enactments and false 2udicial decisions 0hich actually
deprive a large portion of man4ind of their right to the fair and honest e/ercise of their
natural po0ers in competition 0ith their fello0;men. "hat such is the truth 0ill %e seen
hereafter.
"hat the principle of allo0ing each man to have the fruits of his o0n la%or 0ould also
conduce to the aggregate increase of 0ealth is o%vious for the reason that each man
%eing as he then 0ould %e dependent upon his o0n la%or instead of the la%or of
others for his su%sistence and 0ealth 0ould %e under the necessity to la%or and
conse1uently 0ould la%or. "he aggregate 0ealth of society 0ould therefore %e increased
%y 2ust so much as the la%or of all the mem%ers of society should %e more productive
than the la%or of a part. It 0ould also %e increased %y the operation of another principle
to 0it: =hen a man 4no0s that he is to have all the fruits of his la%or he la%ors 0ith
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more :eal s4ill and physical energy than 0hen he 4no0s&as in the case of one
la%oring for 0ages&that a portion of the fruits of his la%or are going to another. ,nder
the influence then of this principle that each man should have all the fruits of his o0n
la%or the aggregate 0ealth of society 0ould %e increased in t0o 0ays to 0it first all
men 0ould la%or instead of a part only5 and secondly each man 0ould la%or 0ith
more s4ill energy and effect than hired la%orers do no0.
Proposition 6. In order that each man may have the fruits of his o0n la%or it is
important as a general rule that each man should %e his o0n employer or 0or4 directly
for himself and not for another for 0ages5 %ecause in the latter case a part of the fruits
of his la%or go to his employer instead of coming to himself.
Proposition 7. "hat each man may %e his o0n employer it is necessary that he have
materials or capital upon 0hich to %esto0 his la%or.
Proposition 8. If a man have not capital of his o0n upon 0hich to %esto0 his la%or it is
necessary that he %e allo0ed to o%tain it on credit. *nd in order that he may %e a%le to
o%tain it on credit it is necessary that he %e allo0ed to contract for such a rate of
interest as 0ill induce a man having surplus capital to loan it to him5 for the capitalist
cannot consistently 0ith natural la0 %e compelled to loan his capital against his 0ill.
*ll legislative restraints upon the rate of interest are therefore nothing less than
ar%itrary and tyrannical restraints upon a man<s natural capacity and natural right to hire
capital upon 0hich to %esto0 his la%or. *nd of conse1uence they are nothing less than
ar%itrary and tyrannical restrictions upon the e/ercise of his right to o%tain all the fruits
that he honestly can o%tain from his la%or.
"he rate of interest 0hich the capitalist 0ill demand 0ill depend upon a variety of
circumstances and especially upon the ris4 of loss attendant upon the loan&in other
0ords upon the character of the security offered %y the %orro0er for the payment of the
loan. "his security and conse1uent ris4 0ill differ in the cases of different individuals.
"he legislation therefore that prescri%es a fi/ed rate of interest %eyond 0hich no
contracts may go&especially if that limit %e as it usually is the lo0est at 0hich
capitalists 0ill loan money on the most approved security&in effect deprives all those
0ho cannot offer the most approved security of their right of hiring capital at all.
"he great mass of those 0ho %y reason of not having the most approved security to
offer cannot %orro0 capital at all at si/ per cent. could yet 0ithout difficulty %orro0
enough to employ their o0n hands upon 'say from t0o to ten hundred dollars( on the
credit of their s4ill industry integrity and a%ility and of the value 0hich their la%or
0ould add to the capital %orro0ed if they 0ere allo0ed to contract for seven eight
nine or ten per cent. interest&enough to pay for the ris4 of life health losses %y fire
theft ro%%ery >c.5 0hich ris4s it is perfectly right that the capitalist should %e guarded
against %y an additional rate of interest.
"he effect of usury la0s then is to give a monopoly of the right of %orro0ing money
to those fe0 0ho can offer the most approved security. * man offering the most
approved security can o%tain money at si/ per cent.5 0hile another 0hose security is
not so accepta%le %ut 0ho nevertheless could o%tain money as readily at seven eight
or nine per cent. as the other does at si/ cannot no0 o%tain it at all simply %ecause he
is for%idden to contract for such a rate of interest as 0ould in the average of loans
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compensate capitalists for the additional ris4 or inconvenience attendant upon the only
4ind of security he has to offer.
"he conse1uence is that the loana%le capital of society is monopoli:ed almost entirely
%y those fe0 those very fe0 0ho 0ish to %orro0 and can offer the most approved
security5 0hile the mass of those 0ho have not capital of their o0n %ut 0ho if left free
to ma4e their o0n contracts 0ould %e a%le to o%tain a portion sufficient to employ their
o0n hands upon are no0 for the 0ant of capital on 0hich to %esto0 their la%or
compelled to sell their la%or to those 0ho have %y means of the usury la0s
monopoli:ed the capital. *nd they are compelled to sell their la%or at such a price as
0ill ena%le the employer to ma4e a large profit upon their la%or5 or in other 0ords
ena%le him to put into his o0n poc4et an important portion of the fruits of their la%or.
*ll this is the effect of the usury la0s. "he same la0s that ena%le him to monopoli:e the
loana%le capital ena%le him also to monopoli:e the la%or of those 0ho cannot %orro0
capital on 0hich to %esto0 their la%or.
"o illustrate the operation of this principle let us suppose that a capital of five hundred
dollars is necessary to employ the la%or of one man5 that under the usury la0s *
o0ing to the approved character of the security he has to offer can %orro0 and does
%orro0 at si/ per cent. interest five hundred dollars capital more than he 0ants to
employ his o0n hands upon5 that 9 is a poor man 0ho cannot %orro0 capital at si/ per
cent. and therefore o0ing to the prohi%ition of the usury la0s cannot %orro0 it at all5
that he is conse1uently compelled to sell his la%or to * 0ho has %orro0ed the necessary
capital to employ his la%or5 that * %uys 9<s la%or for a year and after paying his
0ages and the interest on the five hundred dollars on 0hich he has employed 9 to
la%or he '*( reali:es one hundred dollars profit.
"his pro%a%ly is not an e/travagant supposition5 for it is pro%a%le that employers 0ho
%orro0 their capital at si/ per cent. and manage their %usiness 2udiciously do generally
reali:e at least an hundred dollars profit from the la%or of each adult male la%orer they
employ.
#o0 it is plain that if 9 had %een allo0ed to %orro0 and had %orro0ed 'as he pro%a%ly
could have done( this same five hundred dollars capital at nine per cent. and had then
employed his o0n hands upon it he could have put into his o0n poc4et eighty;five
dollars more of the fruits of his la%or than he did 0hen la%oring for * for 0ages&for he
could have had all the fruits of his la%or 'that is the amount %oth of his 0ages and the
profits made %y *( 0ith %ut this a%atement vi:. that he must have paid three per cent.
more interest for his capital than 0as paid %y *. "his three per cent. interest on five
hundred dollars 0ould %e fifteen dollars&0hich deducted from the hundred dollars
that 0ent into *<s poc4et as profit leaves eighty;five dollars to go into 9<s o0n poc4et
over and a%ove the amount he received as 0ages 0hen la%oring for *.
"his supposition illustrates fairly the operation of usury la0s in depriving the mass of
men of the fruits of their la%or. "hese la0s give a monopoly of the loana%le capital to a
fe0 individuals. "hese individuals having a monopoly of capital are a%le to ta4e
advantage of the necessities of all those 0ho have not capital of their o0n and are
for%idden to %orro0 any on 0hich to la%or. "hey thus compel them to sell their la%or at
a price that 0ill give their employer a large slice out of the products of their la%or. "he
la0s themselves are the contrivances not of the retired rich men 0ho have capital to
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loan&for they of course 0ish to carry their money to the largest and freest mar4et&
%ut of those fe0 ?enterprising@ ?%usiness men@ as they are called 0ho in and out of
legislatures are more influential than either the rich or the poor5 0ho control the
legislation of the country and 0ho %y means of usury la0s can sponge money from
those 0ho are richer and la%or from those 0ho are poorer than themselves&and thus
ma4e fortunes. *nd they are almost the only men 0ho do ma4e fortunes&for almost all
fortunes are made out of the capital and la%or of other men than those 0ho reali:e them.
Indeed large fortunes could rarely %e made at all %y one individual e/cept %y his
sponging capital and la%or from others. *nd the usury la0s are the means %y 0hich he
does it.
"he reason given for usury la0s is that they protect the poor from the e/tortions of the
rich. 9ut this reason is a false one&for there is no more e/tortion in loaning capital to
the %est %idder than in selling a horse or renting a house to the %est %idder. "he true
and fair price of capital as of everything else is that price 0hich it 0ill %ring in fair and
open mar4et. *nd those 0ho falsely pretend to %e interested to prevent the rich
e/torting money from the poor in the shape of interest on capital are the very men 0ho
0ant nothing %ut an opportunity for themselves %oth to e/tort capital from the rich and
la%or from the poor that they may thus fill their o0n poc4ets at the e/pense of other
men<s rights. "he protection they offer to the poor is the protection of for%idding them
to %orro0 capital on 0hich to employ their la%or and thus compelling them to sell their
la%or at a price that ena%les the purchaser to ma4e a large profit upon it5 it is the
protection 0hich as in the case already supposed 0ould really e/tort from them
eighty;five dollars of their la%or to save them from the pretended e/tortion of fifteen
dollars in the shape of interest. Leave the rich and the poor to ma4e their o0n %argains
in regard to the interest of capital and it is as certain as the la0s of nature that capital
0ill find its 0ay into the hands of those 0ho are to perform the la%or upon it. In fact the
usury la0s impliedly admit that such 0ould %e the result&else 0hy do they prescri%e
such rates of interest as must necessarily confine all loans to a fe0 individualsA
-f all the frauds %y 0hich la%or is cheated out of its earnings %y legislation and of all
the monopolies esta%lished %y legislation pro%a%ly no one is more purely tyrannical in
its character or more destructive at once of the natural right of individuals to ma4e their
o0n contracts and of the 2ust distri%ution of 0ealth than that monopoly of the right of
%orro0ing money 0hich for%ids the mass of men to o%tain capital on 0hich to %esto0
their la%or and thus compels them to sell their la%or at a price far %elo0 the amount of
its actual products.
"he la0 that allo0s all men 0ithout distinction to %orro0 capital provided they can
%orro0 it at si/ per cent. interest is in the e1uality of its operation li4e a la0 that
should allo0 every man perfect freedom to profess and en2oy his o0n peculiar religion
provided his peculiar religion 0as the particular and only one that 0as allo0ed %y the
State to %e professed and en2oyed %y any one.
* statute that should for%id one man to %orro0 at any rate of interest 0hatever more
capital than he could manage %y his o0n la%or alone 0ould not %e tolerated for the
reason that it 0ould %e an infringement of men<s natural rights to %orro0 all they could5
yet it 0ould not %e half so une1ual or pernicious nor so un2ust an infringement of
individual rights nor pro%a%ly so destructive of the e1ual distri%ution of 0ealth as are
the usury la0s 0hich allo0 one man to %orro0 enough to employ a hundred la%orers
B
upon 0hile they for%id the hundred la%orers to %orro0 each enough to employ his o0n
hands upon.
=hat a change 0ould %e 0rought upon the face of society if each adult male la%orer
0ho is no0 o%liged to sell his la%or 0ere to receive during the prime of his life
eighty;five dollars annually of the fruits of his la%or more than he does no05 and if all
older and younger persons and females 0ho are no0 o%liged to sell their la%or 0ere
also to receive a similar greater proportion of the fruits of their la%or. .et if the
supposition %efore made %e correct 0hat prevents such a resultA If the a%olition of the
usury la0s alone 0ould not accomplish it the a%olition of these and the other tyrannical
and unconstitutional restraints upon the freedom of industry and men<s rights of
contract hereafter to %e pointed out 0ould I thin4 certainly accomplish it at least in
the case of all honest industrious and ordinarily s4illful la%orers.
Proposition B. "he la%orer not only 0ants capital on 0hich to %esto0 his la%or %ut he
0ants to o%tain this capital at the lo0est rate of interest at 0hich in the nature of
things he can o%tain it. "hat he may o%tain it at the lo0est possi%le rate of interest it is
necessary that free %an4ing %e allo0ed.
"he correctness of this proposition 0ill %e seen 0hen it is considered 0hat %an4ing
really is. 9an4ing is loaning one<s credit 'for circulation as currency( instead of
loaning money.
If a man can afford to loan money for si/ per cent. interest he can certainly afford to
loan his credit for three. *nd 0hyA 9ecause 0hatever profit a man ma4es %y loaning his
credit is clear gain. It costs him nothing5 for he still en2oys the use of the houses lands
or other property on 0hich his credit is %ased in the same manner as if he had not
loaned the credit %ased upon them. 9ut the income 0hich a man derives from the loan
of money itself is o%tained only %y the sacrifice or at the e/pense of the crops rents or
other incomes 0hich he might derive from the lands houses or other property 0hich
his money 0ould purchase. If therefore a man can afford for si/ per cent. interest on
his money to give up all the crops rents and other incomes 0hich he might o%tain
from the lands houses or other property 0hich his money 0ould purchase it is plain
that for three per cent. he could afford to loan his credit 0hich costs him nothing %ut
the ris4 and trou%le attendant upon the loan '0hich ris4 and trou%le %y the 0ay are not
materially and in general perhaps no greater than in the loan of money.(
It can hardly %e said that there is any profit in loaning money itself5 for the interest
o%tained is generally no more than a fair price or e1uivalent for the crops rents or other
incomes 0hich the property that might %e purchased 0ith the money 0ould yield. 9ut
in the loan of credit there is an actual profit of the 0hole amount that is received as
interest after paying the trou%le and ris4 of %an4ing.
It is clear therefore that if money can %e loaned as it no0 is for si/ per cent. interest
credit could %e loaned at t0o three or four per cent.
Since then all %an4ing profit is a net profit 0ithout cost and not li4e the interest on
money an e1uivalent for the crops rents and other incomes of property that the lender
might have retained and en2oyed5 and as the materials for %an4ing credit are a%undant
and almost supera%undant it is o%vious that if free competition in %an4ing 0ere
C
allo0ed the rate of interest on %an4ing credit 0ould %e %rought very lo0 and %an4
loans 0ould %e 0ithin the reach of every%ody 0hose %usiness and character should
ma4e him a reasona%ly safe person to loan to. Pro%a%ly every such person could
%orro0 at si/ per cent. capital enough to employ his o0n hands upon5 and many 0ould
dou%tless %e a%le to %orro0 it for five four or even three per cent.
Suppose such 0ere the result and suppose five hundred dollars capital to %e enough to
employ each man<s la%or the only difference %et0een the annual income of a man 0ho
should o0n his capital and of one 0ho should %orro0 his 0ould %e %arely the interest
paid %y the latter&that is fifteen t0enty t0enty;five or thirty dollars according as he
should pay three four five or si/ per cent. interest. =hat a change 0ould %e rapidly
0rought in the condition of man4ind %y a system that should supply all the destitute
0ith the use of capital on such terms as these.
If free %an4ing 0ere allo0ed the loana%le credit could not %e monopoli:ed %y a fe0
%orro0ers as the loana%le money no0 is. "he materials for %an4ing credit are so
immense so nearly illimita%le indeed and e/ist in such a variety of shapes and are
distri%uted among so many proprietors that it 0ould %e impossi%le to concentrate them
as money is no0 concentrated in the hands or %ring them under the control of a fe0
corporations or confine the loans %ased upon them to a fe0 favorite individuals.D
9an4ing credit is the %est 4ind of credit for the %orro0er&and for these reasons.
3. It is o%tained at the lo0est possi%le rate of interest.
6. It then ena%les the %orro0er to %uy at cash prices 0hatever he 0ishes to %uy.
7. Circulating li4e money itself and divisi%le li4e money itself into small amounts it
ena%les the %orro0er to %uy his commodities or materials in such 1uantities of such
1ualities and of such persons as it 0ill %e most for his interest to %uy them&instead of
his %eing compelled as he is 0hen he %uys his commodities on credit to %uy them in
such 1uantities of such 1ualities and of such persons as it may chance that he can %uy
them on credit.
So great are the necessities of the poor for materials upon 0hich to %esto0 their la%or
and for the necessaries of life such as food clothing and fuel5 and so great are the
difficulties in the 0ay of getting cash to ma4e their purchases 0ith that they are
compelled to ma4e most of their purchases on credit5 to ma4e them of persons 0ho do
not 0ish to give them credit and 0ho 0ill not give them credit e/cept at e/travagant
prices5 and also often to %uy commodities not the %est adapted to their 0ants. In ma4ing
their purchases under these circumstances they not only suffer serious losses in the
4inds and 1ualities of the commodities purchased %ut they are also o%liged to pay five
ten fifteen or t0enty per cent. more for them than they 0ould have to pay if they had
cash to %uy 0ith. Pro%a%ly also the retailer 'of 0hom many of their purchases are made(
has himself %ought his goods on credit of the 0holesale dealer and paid five ten or
fifteen per cent. more than if he had %ought 0ith cash. *nd this increased price paid %y
the retailer finally falls upon the consumer in addition to the increased price 0hich the
consumer also pays on account of his o0n 0ant of cash to %uy 0ith. Free %an4ing
0ould o%viate almost entirely these enhanced prices of commodities and these losses
from the 0ant of adaptation in the commodities to the 0ants of the purchasers5 %ecause
E
if free %an4ing 0ere allo0ed almost every%ody 0ho 0as 0orthy of credit at all %oth
retailer and consumer could o%tain it at the %an4s and then ma4e his purchases for
cash5 and having cash to purchase 0ith he 0ould %e under no necessity to %uy only
such commodities as 0ere %est adapted to his 0ants.
It 0ould pro%a%ly %e a moderate estimate to suppose that the poor suffer an average loss
&including the losses on price 1uality and adaptation to their 0ants&of fifteen or
t0enty per cent. on all their purchases over 0hat they 0ould pay under a system of free
credit currency. Supposing their purchases to %e from t0o to four hundred dollars a
year their losses at the rate mentioned 0ould %e from thirty to eighty dollars annually
&an amount sufficient if lost to 4eep them poor5 or if saved to give them a
competency.
Proposition C. *ll credit should %e %ased upon 0hat a man has and not upon 0hat he
has not. * de%t should %e a lien only upon the property that a man has %efore and 0hen
the de%t %ecomes due5 and not upon his earnings after the de%t is due. If therefore a
man %e a%le to pay a de%t 0hen it %ecomes due he should pay it in full5 if una%le to pay
it in full he should pay to the e/tent of his a%ility5 and that payment should %e the end
of that transaction. "he de%t should %e no lien upon his future ac1uisitions.
"he only e/ceptions to this rule should %e 3 0here the de%tor previous to the de%ts
%ecoming due has dishonestly s1uandered or misapplied the means 0hich he should
have retained for the payment of his de%t5 and 6 0here he has omitted to do something
0hich he 0as plainly %ound to do to0ards putting himself in a condition to pay. 9ut if
he have %een honest and faithful in the performance of everything that on his part he
0as %ound to do the de%t should %e %inding only to the e/tent of his a%ility at the time
the de%t should %ecome due. *nd this it 0ill %e seen hereafter in the chapters on the
legal nature of de%t is the 0hole legal o%ligation of a de%t in any case5 and in the case
of most de%ts it is also the 0hole moral o%ligation.
,nder the operation of this principle nearly all de%ts 0ould %e settled at once on their
%ecoming due5 and %e then settled finally and forever. "he creditor 0ould then 4no0
0hat he had got and 0ould have no occasion to spend any further time thought or
money in harassing the de%tor %y attempts to get more. *nd the de%tor on his part
0ould 4no0 that he 0as a free man5 and 0ould at once engage in the %est employment
he could find 0ithout %eing lia%le to %e distur%ed or o%structed %y his former creditor
in the prosecution of it. "hus creditor and de%tor 0ould %e li4ely thenceforth to %e more
useful %oth to themselves and society under this arrangement than under the opposite
one 0hich ma4es the creditor the enemy of the de%tor and incites him to an e/pensive
cruel perpetual destructive and generally profitless 0ar upon him his family and his
and their industry.
It may %e supposed %y some that credit 0ould not %e given if the legal o%ligation of
de%ts 0ere limited in this manner. 9ut men 0ould as lief give credit on this principle as
on any other if they 0ere to understand 0hen the contract 0as made that such 0as its
legal effect5 and if they 0ere also to %e at li%erty to ma4e their o0n %argains in regard to
the rate of interest&for they 0ould then charge an additional interest sufficient to cover
the additional ris4 if any that they might suppose to result from this principle. *nd it
0ould %e far %etter for de%tors to pay a slight additional interest and have the %enefit of
this principle than to ma4e their contracts under all the lia%ilities of the opposite one.
F
"he payment of a slight additional interest 0ould %e e1uivalent to paying a slight
premium for %eing insured against the calamity of an arrearage of de%t and perpetual
poverty in case of any miscalculation or misfortune on their part.
9ut the pro%a%ility is that the ris4 to creditors 0ould %e no greater not even so great
under the operation of this principle as it is 0ithout it&and for these reasons.
3. "his principle 0ould %ring a%out a general practice of short credits and prompt
settlements5 0hich for a variety of reasons too o%vious to need enumeration are
altogether safer and %etter for %oth de%tors and creditors.
6. "he de%tor under this principle has a much stronger motive than he has under the
opposite one to the practice of honesty industry and frugality and&if una%le to pay
the 0hole of his de%t&to the payment of the most that it is in his po0er to pay 0hen
the de%t %ecomes due. For he 4no0s that he can thus not only cancel his de%t at its
maturity and %e free from it forever %ut save his character and credit also. 9ut under
the principle of perpetual lia%ility 0henever a man finds that he has made an error in
his calculations and that it 0ill %e impossi%le for him to pay his de%t in full that no
e/ertion on his part can save him from an arrearage of de%t he is apt to thin4 and feel
that he is ruined not only in his present fortune %ut in his future credit and prospects.
)e therefore %ecomes disheartened and perhaps idle prodigal and dishonest&saying
to himself ?I may as 0ell die for a large sum as a small one.@ So far as this feeling
operates upon the de%tor&and that it 0ill operate to a greater or less e/tent upon all
de%tors is inevita%le&the creditor suffers a corresponding per centage of loss on his
de%t&a loss that under the opposite principle 0ould have %een saved.
9ut 0hen a de%tor contracts a de%t 0ith the 4no0ledge that at its maturity all that can
%e re1uired of him %y his creditor 0ill %e that he shall have practised integrity
industry and frugality and that he shall ma4e such payment as the practice of these
virtues may have ena%led him to ma4e and that under these circumstances not only his
de%t 0ill %e cancelled %ut his character and credit saved he has the stimulus of all these
motives operating upon him during the 0hole period from the time the de%t is
contracted until it %ecomes due. *nd 0hen a man is governed %y these motives during
the 0hole period mentioned he 0ill almost uniformly %e a%le to pay at their maturity
all such de%ts as 0ere prudently contracted5 unless he meet 0ith some unusually hard
fortune. *nd even in the case of hard fortune he 0ould still %e a%le generally to pay the
greater part of his de%t5 for it is not often if ever that a man in the short interval
%et0een the time of contracting a de%t and the time the same de%t %ecomes due meets
0ith such heavy misfortunes as to s0allo0 up everything in his hands.
7. If this principle of la0 0ere acted upon 0e should have no insolvent or %an4rupt
la0s as no0 discharging men from their contracts ar%itrarily 0ithout regarding
0hether they have %een honest or dishonest prudent or profligate frugal or e/travagant
fortunate or unfortunate. ,nder the present system insolvent and %an4rupt la0s are
indispensa%le to save honest de%tors from hopeless and perpetual poverty and 0ant. .et
as these la0s apply to large num%ers of de%ts instead of a single one it is impossi%le
that they should ma4e such discriminations %et0een the honest and dishonest the frugal
and the e/travagant the fortunate and the unfortunate de%tor as 0ould %e made in the
case of a single de%t de%tor and creditor. "he conse1uence is that under the present
system creditors have and can have little other security for the honesty of their
G
de%tors than 0hat the principles and interests of the latter may afford. 9ut under the
other system the de%tor 0ould %e held lia%le on each de%t to the scrutiny of his
creditor5 and 0ould fail of a release from his lia%ility if dishonesty profligacy or
e/travagance 0ere proved against him.
=hich of these t0o systems affords the %est securities to creditors it hardly needs
further argument to demonstrate.
8. ,nder the present system de%tors under certain circumstances are almost
compelled %y the necessities of their condition to 0rong their creditors. For instance&
a de%tor %efore his de%t %ecomes due finds that it 0ill %e out of his po0er to pay the
0hole of his de%t at the time it %ecomes due. )e 4no0s that this arrearage 0ill %e a
%urden upon his future ac1uisitions and that if he suffer it to %ecome 4no0n it 0ill
also %e an o%stacle to his o%taining such further credit as may %e necessary for the
successful prosecution of his industry. 9ut his de%t not %eing yet due and his
insolvency not having yet come to light he has still a credit in the community. )e avails
himself of this credit in the desperate hope to retrieve his fortune and save his credit5 or
if this cannot %e 0ith the intention of putting as far off as possi%le the evil day of open
insolvency and ruin. )e adopts the principle that he 0ill never stop payment so long as
his credit is availa%le. '*nd pu%lic opinion 2ustifies him in adopting this principle. "he
pu%lic generally regard a man as a fool or a co0ard 0ho su%mits to open insolvency so
long as he can get credit.( )e therefore ma4es ne0 de%ts to pay old ones5 %orro0s
money at ruinous rates of interest5 ma4es desperate moves in his %usiness5 every
struggle to e/tricate himself only sin4s him deeper in the mire5 finally he gets to the end
of his credit5 his race is run5 the insolvent la0s come in to settle the matter5 and his
0hole arrearages of de%t and the conse1uent losses of his creditors are perhaps ten
t0enty or fifty times greater than they 0ould have %een if he had settled 0ith his first
creditor %y paying all he had to pay 0hen he first found that he 0as in arrears. =hich
of the t0o systems then is the %est for creditors as a classA
B. Creditors as a class&men 0ho have money and capital to loan&have an interest that
their customers the %orro0ing class should cancel their de%ts %y paying 0hat they can
as soon as they find themselves in serious arrears not only for the reason that their
arrears 0ill then usually %e many times less than 0hen settlements are postponed as
no0 to the latest possi%le period %ut %ecause the de%tors 0ill then %ecome good and
safe customers to the money lenders again.
C. "he principle that a de%t is o%ligatory only to the e/tent of the de%tor<s means 0hen
the de%t %ecomes due 0ould nearly if not 0holly put an end to a class of contracts
that are immoral and fraudulent in intent if not in la0 on the part of the creditors and
0hich ought never to %e enforced against de%tors. "hese contracts are of this 4ind. *n
old and e/perienced man ta4es advantage of the ine/perience and the sanguine
anticipations of a young man to sell him property at enormous prices giving him credit
for the 0hole or a part %ut 0ell 4no0ing from his o0n superior 2udgment and
e/perience that the young man 0ill not at all reali:e his anticipations or even reali:e
enough from the property to cancel his lia%ility. 9ut he sells the property to him on the
calculation that the latter 0ill %e a%le to pay at least the real value of the property5 and
that as for the %alance he is a young man he 0ill %e a%le to 0or4 it out5 or his friends
0ill pay it for him5 or the possession of this property 0ill ena%le him to get credit of
others and thus he 0ill %e ena%led to pay this de%t %y thro0ing an e1uivalent amount of
3H
loss upon some%ody else. Such contracts are plainly immoral and fraudulent on the part
of the creditor %oth to0ards the de%tor and to0ards othersD &although their
immorality and fraud are of a character not suscepti%le of %eing legally proved and
defeated in particular cases. "he only 0ay of defeating them seems to %e to adopt the
principle that no contract is %inding %eyond the limits of the de%tor<s means.
9ut it is unnecessary in this place to go into a detail of all the %enefits that 0ould
result to %oth de%tors and creditors from the adoption of the principle that a de%t is a
lien only upon the de%tor<s means at the time the de%t %ecomes due. "hese %enefits are
o%viously of the most important character. *nd 0e shall hereafter see that the principle
is one of natural la0 0hich all courts 0ithout the aid of legislation and in defiance of
all legislation are %ound to maintain and carry into effect.
Proposition E. Creditors should have liens upon the property of their de%tors in the
order in 0hich their de%ts are contracted5 '0ith some e/ceptions hereafter to %e named5(
and the creditor having the first lien should %e paid in full %efore the second receives
any portion of his de%t. *nd this principle should apply to all the creditors respectively
&each prior creditor having a right to full payment %efore a succeeding creditor can
receive anything. *nd it should %e held legally fraudulent in a de%tor 'e/cept in cases
hereafter mentioned( to pay a su%se1uent creditor to the pre2udice of a prior one.
"hese principles are 2ust in themselves&they are the principles of natural la0&and the
effect of them 0ould %e much %etter for %oth de%tors and creditors than those that no0
prevail.
"hat they are 2ust in themselves as %et0een creditors is o%vious from the fact that a
personal de%t as for instance a promissory note or a %oo4 account is in e1uity a lien
upon all a de%tor<s general property in very nearly the same manner e/cept in form
that a mortgage is a lien upon a specific parcel of real estate. "he second creditor
therefore in a personal de%t stands in the same relation to a prior creditor 0ith
reference to the general property of the de%tor that a second mortgagee does to a prior
one 0ith reference to a specific parcel of real property on 0hich they %oth hold
mortgages. )e in effect ta4es a second lien upon the de%tor<s general property5 and he
of course ta4es it su%2ect to the incum%rance of the prior lien 0hich is entitled to %e
first satisfied.
-ne great o%stacle in the 0ay of capitalists loaning capital to poor men under our
present system is that the creditor holds no claim upon the capital he himself has
loaned or its proceeds for the security of his de%t in preference to su%se1uent
creditors. If he could hold the first lien upon the capital loaned and upon the value that
should %e added to it %y the la%or of the %orro0er it 0ould then generally %e safe to
lend capital to men 0ho 0ere destitute of any other property.
It is a great defect in the doctrine of liens as no0 administered that it in general
recogni:es the principle of lien only in relation to specific articles of property5 0hich
articles can %e used %y the de%tor %ut cannot %e e/changed %y him for any other
property %etter adapted to his use. "his principle does not ena%le a %orro0er to give his
creditor security upon money 0hich his creditor loans to him to %e employed in
%usiness and 0hich must %e e/changed and perhaps pass through half a do:en different
forms %efore it is repaid to the creditor. =hat is 0anted in order to secure a creditor for
33
money 0hich he has loaned to %e employed %y the de%tor in %usiness or for property
of any 4ind 0hich he sells on credit and 0hich the de%tor is to %e permitted to convert
into property of another 4ind is that he 'the creditor( should have a prior right over
any su%se1uent creditor to the proceeds of that money or other property into 0hatever
shape it may after0ards %e converted %y the de%tor. *nd this o%2ect can %e
accomplished only %y adopting the general principle that a prior creditor has a prior
lien upon the general property of his de%tor for the full satisfaction of his de%t.
If * loan capital to I 0hen I is free of de%t it is certainly right that * should %e paid
out of the proceeds of the capital he himself has loaned in preference to any%ody else. It
is therefore right that his de%t should %e a lien upon that capital or its proceeds in the
hands of I5 and that I should have no right 0ithout the consent of * to dispose of it
or its proceeds to the pre2udice of * for the %enefit of any third person. *nd he should
have no more right to dispose of it to the pre2udice of * for the %enefit of a su%se1uent
creditor than for the %enefit of any other person.
If therefore 9 su%se1uently give credit or loan capital to I %efore the de%t of * is
paid 'or has e/pired for 0ant of payment( he gives him credit su%2ect to all the
disadvantages of the prior lien that * has upon the property of I. *nd this prior lien
0hich * has upon the property of I for the capital first loaned to him 0ill %e a lien also
upon the capital loaned him %y the su%se1uent creditor '9( unless 9 at the maturity of
*<s de%t shall %e a%le to prove that particular portions of the de%tor<s property still
remaining distinguisha%le from the rest are parts or proceeds of the specific capital
loaned to him %y himself '9.( "hat is the first creditor 0hen his de%t %ecomes due
0ill have a prima facie lien upon all the property in the hands of the de%tor5 and the
%urden of proof 0ill %e upon the su%se1uent creditors to sho0 that specific portions of
the property 0hich can still %e distinguished from the de%tor<s general property 0ere
loaned to the de%tor %y themselves and 0ere therefore not included in the first
creditor<s lien. *ll those portions of the su%se1uent loans or their proceeds 0hich shall
have %ecome indistinguisha%ly mi/ed 0ith the first loan or its proceeds or 0hich the
su%se1uent creditors shall have no legal proof to distinguish from the first loan or its
proceeds 0ill %e held a%solutely lia%le for the satisfaction of the first creditor<s de%t.
"his principle of the priority of rights on the part of creditors 0ill %e more fully
illustrated hereafter in the chapters on the legal nature of de%t5 and the principle 0ill
then %e sho0n to %e a legal one 0hich courts are %ound to carry into effect. In this
place I shall only point out some of the economical results that 0ould flo0 from its
adoption.
3. -ne of these results 0ould %e that it 0ould %e safe for a capitalist to loan capital to a
poor man if the latter 0ere %ut free of de%t 0ere a man of integrity and frugality of
ordinary capacity for %usiness and 0ere engaged in a %usiness that 0as ordinarily
profita%le5 %ecause the capitalist 0ould have a lien for his de%t not only upon the
capital itself that he had loaned 'or its proceeds( %ut also upon all the value that should
%e added to it %y the la%or of the de%tor. If for instance a capitalist should sell to a
shoema4er on credit t0o hundred dollars< 0orth of leather or should loan to him t0o
hundred dollars of money 0ith 0hich to %uy leather to %e 0rought %y the latter into
shoes he 0ould hold a lien in preference to any su%se1uent creditor not only upon the
leather itself %ut upon the shoes manufactured from that leather. *ll the additional
36
value that should %e given to the leather %y its %eing 0rought into shoes 0ould add so
much to the creditor<s security for his de%t.
"he principal dra0%ac4 upon this security is this vi:. that the la%orer and his family
must have their su%sistence out of the proceeds of their la%or&in other 0ords from the
sale of the shoes manufactured. "he amount of this dra0%ac4 0ill depend upon the
num%er health economy and industry of the de%tor<s family. In the case of a young
man 2ust setting out in life 0ith a 0ife and 0ithout children the necessary cost of a
frugal su%sistence such as a prudent and reasona%le person 0ould %e satisfied 0ith 'at
least until he had accumulated capital enough of his o0n to employ his o0n hands
upon( 0ould pro%a%ly not consume even one half the value that 0ould %e added to the
capital %y his la%or. In the case of larger families a large proportion of this value 0ould
%e consumed. 9ut in fe0 or none unless it 0ere in case of sic4ness 0ould it %e so
nearly consumed as to impair the creditor<s security. "his is evident from the fact that
la%orers no0 support their families simply upon the 0ages they receive for their la%or
although their 0ages do not amount to more than one half t0o thirds or three fourths
of the value 0hich their la%or adds to the capital on 0hich they are employed 'the rest
going into the poc4ets of their employers.( If then they 0ere to have&as 0hen they
0ere their o0n employers they 0ould have&the 0hole of the value that should %e
added to the capital %y their la%or they could not only su%sist as 0ell as they do no0
%ut have considera%ly more than enough %eside to repay the capital %orro0ed 0ith
interest&%ecause the capital %orro0ed 0ill itself %e sufficient to repay the loan and
interest if %ut si/ seven eight nine or ten per cent. 'according as the rate of interest
may %e( shall %e added to its value %y the la%orer. *ny la%orer having ordinary
capacities could add this amount of value to t0o three or five hundred dollars capital
and still have nine tenths of the 0hole value or proceeds of his la%or left 0ith 0hich to
su%sist himself and family. *nd these nine tenths of the 0hole value or proceeds of his
la%or '0hen he had t0o three or five hundred dollars capital to 0or4 0ith( 0ould
un1uestiona%ly amount to much more than he 0ould receive as 0ages 0hen he sold his
la%or to an employer.
"he other dra0%ac4s on the security mentioned 'in addition to the su%sistence of the
la%orer and his family( are the ris4s of the health and life of the %orro0er and the ris4
of accidents %y fire >c. "hese ris4s on the aggregate of loans 0ould %e small and
0ould %e guarded against %y creditors %y small additional rates of interest 'if usury
la0s 0ere a%olished( %y life insurance and %y insurance on the capital against fire. "he
costs of guarding against all these ris4s 0ould amount to no more than a small addition
to the rate of interest on the capital and %eing thus provided for 0ould interpose no
serious impediment to the loan of capital to poor men.
-ne principal if not insupera%le o%stacle in the 0ay of loaning capital to poor men in
the present state of things is that the creditor has no legal security that the de%tor 0ill
not contract other de%ts after0ards and that the capital 0hich he has loaned to him
0ill not %e applied either %y the de%tor himself or %y the insolvent la0s to the
payment of these de%ts to other men. "his o%stacle 0ould %e entirely removed %y the
adoption of the principle of the prior right of the prior creditor.
6. *nother result of this principle 0ould %e the general distri%ution of credit. *
capitalist a%out to loan money 0ould %e very cautious of loaning to a person already in
de%t for capital %orro0ed of others&lest the capital loaned %y himself should %ecome
37
indistinguisha%ly mi/ed 0ith that %orro0ed of the prior creditors and %e devoted in
0hole or in part to the payment of such prior creditor<s claims. )e 0ould therefore
see4 for %orro0ers 0ho 0ere free of de%t that he might at least hold a secure lieu upon
the capital 0hich he himself should loan to them. "he principle 0ould thus o%viously
prevent the accumulation of large credits in the hands of single individuals. *nd %y
preventing large accumulations of credit in the hands of single individuals it 0ould
promote the distri%ution of the same aggregate amount of credit in smaller parcels
among a larger num%er of individuals. *nd the same aggregate amount of credits that
no0 e/ist in the community if properly distri%uted 0ould pro%a%ly put into the hands
of nearly or 1uite every la%orer in the country an amount of capital sufficient for him to
employ his o0n hands upon.
"his principle of the prior right of the prior creditor 0ould %e no o%stacle to %an4ing
nor to a %an4er<s paying a second note 0hile a prior one 0as still in circulation&
%ecause a %an4er<s notes are paya%le on demand and are due immediately on their
%eing issued. If therefore the holder do not present them 0hen due 'that is if he do not
present them immediately on their %eing issued( such omission is a voluntary 0aiver
on his part of his right to priority of payment and allo0s the %an4er to pay his notes in
the order in 0hich they are presented for payment. "he same principle 0ould apply to
all other de%ts that 0ere not demanded 0hen due.
*gain5 although this principle of the prior right of the prior creditor 0ould %e an
o%stacle in the 0ay of a de%tor<s getting a second credit 'unless of the same creditor(
%efore a prior one had %ecome due it 0ould %e no such o%stacle after the former one
had %ecome due even though he should have %een una%le to pay the first credit in full
&%ecause at the maturity of the first credit he 0ould&if the principle of ?Proposition
C@ %e correct&cancel it %y paying to the e/tent of his means 0hich 0ould leave him
thenceforth a free man.
"he result of the t0o principles stated in propositions C and E vi:. 3 that a de%t is
%inding upon a de%tor only to the e/tent of his means5 and 6 that a prior creditor has a
prior lien on his de%tor<s property 0ould %e to induce capitalists individually to see4
out separate la%orers of capacity industry and integrity 0ho 0ere free of de%t and
furnish them respectively 0ith 0hat capital their %usiness should re1uire5 and thus save
%orro0ers from the necessity of getting credit as they do no0 in petty parcels of
several different persons. "hat such 0ould %e the result is o%vious&%ecause 3 a
capitalist 0ould prefer as a general rule not to %ecome the second creditor of a de%tor5
and 6 as capitalists 0ould not 0ish to %ecome the second creditor of a de%tor it 0ould
%e indispensa%le as a general rule that the first creditor should advance capital enough
to ena%le the de%tor to prosecute his %usiness advantageously else he might lose a part
of 0hat he should loan him. "he de%tor having a right to cancel his de%t %y paying to
the e/tent of his means 0ould do so 0henever the creditor should refuse to furnish
sufficient capital to ena%le him to prosecute his %usiness profita%ly. *nd the creditor
0hen he should see that his de%tor 0as using capital advantageously 0ould choose to
advance to him 0hatever might %e necessary %ecause such advance 0ould %e a
profita%le investment of his capital. -n the other hand 0henever he should find that his
de%tor 0as not using capital advantageously he 0ould 0ithhold any further advances
and at the maturity of the credit given close the conne/ion 0ith as little loss if any as
possi%le %y accepting payment to the e/tent of the de%tor<s means in full discharge of
the de%t.
38
"he operation of these principles therefore 0ould %e the esta%lishment of a sort of
partnership relation %et0een the capitalist and la%orer or lender and %orro0er&the
former furnishing capital the latter la%or. -ut of the 2oint proceeds of this capital and
la%or the la%orer 0ould first ta4e enough for an economical su%sistence 0hile
performing the la%or&as it 0ould %e necessary that he should in order that he might
perform it. -n all the remaining proceeds the capitalist 0ould hold a lien for the amount
of capital loaned and also for such an amount of the increased value given to it %y the
la%or 'say si/ seven eight nine or ten per cent.( as should have %een agreed on
%et0een them under the name of interest.
"his 1uasi partnership %et0een the capitalist and la%orer %y 0hich the latter is made
sure of his su%sistence 0hile la%oring and %y 0hich the capitalist is made to ris4 his
capital on the final success of the enterprise 0ithout any claim upon the de%tor in case
of failure is the true relation %et0een capital and la%or 'or 0hat is the same thing
%et0een the lender and %orro0er.( *nd 0hyA 3. 9ecause capital produces nothing
0ithout la%or5 and it is impossi%le that the la%orer should perform the la%or 0ithout
having his su%sistence mean0hile. For these reasons it is right that the su%sistence of
the la%orer 0hile %esto0ing his la%or upon the capital should %e the first charge upon
the 2oint proceeds of the capital and la%or.@D
6. It is right that the capitalist should %e made to ris4 his capital on the final success of
the enterprise 0ithout having any claim upon the de%tor in case of failure 'that is
0hen the de%tor performs his part in the enterprise honestly and faithfully5( %ecause
%eyond this point the capital must %e ris4ed %y some%ody 'the capitalist or la%orer( in
every enterprise. *nd inasmuch as profit 'in the shape of interest( is as much the o%2ect
of the capitalist in furnishing the capital as 'in another shape( it is of the la%orer in
furnishing la%or it is as much right that he should ta4e the ris4 of losing his capital as it
is that the la%orer should ta4e the ris4 of losing his la%or 'that is all over and a%ove his
su%sistence.( "he ris4 is then fairly divided %et0een them5 0hereas it 0ould not %e if
the la%orer 0ere to ris4 %oth his la%or and the capital. If the profit is to %e divided in
case of profit the loss ought to %e divided in case of loss. It is sufficient to ma4e the
enterprise a 2oint one if the profit is to %e divided in case of profit. *nd if it %e a 2oint
enterprise it is as much right that the ris4 of loss should %e 2ointly %orne as that the
chance of profit should %e 2ointly en2oyed.
9ut this 2oint ris4 %et0een the capitalist and la%orer or lender and %orro0er as to the
final result of an enterprise in 0hich the la%or of the one and the capital of the other are
to %e 2ointly employed for their 2oint profit is not only right as %et0een the immediate
parties %ut it is also right and e/pedient on general principles of economy&and for this
reason vi:. that 0hen %oth capitalist and la%orer are interested in the ris4s and results
of an enterprise the enterprise 0ill then have the %enefit of t0o heads instead of one in
2udging of its feasi%ility and pro%a%le results and also in deciding upon the %est plan of
e/ecution. In2udicious enterprises 0ill then %e more li4ely to %e avoided5 and less la%or
and capital 0ill therefore %e 0asted on such enterprises than no0 are. =hen a
capitalist loans money to a la%orer and 4no0s that he 0ill have a claim on the
su%se1uent earnings of the la%orer for any capital that may %e sun4 in the enterprise he
'the capitalist( does not loo4 for himself into the merits of the enterprise as he 0ould if
he 4ne0 that his ultimate security for his capital depended solely upon the success of
the enterprise instead of depending also upon the su%se1uent earnings of the la%orer.
3B
C)*P"ER III.
EC-#-!IC*L RES,L"S FR-! ")E PRECE$I#+ PR-P-SI"I-#S
"he last four of the preceding propositions assert the follo0ing principles to 0it:
3. "he right of the parties to contracts to ma4e their o0n %argains in regard to the rate of
interest.
6. "he right of free competition in the %usiness of %an4ing.
7. "hat the legal o%ligation of a de%t 0ith specific e/ceptions is e/tinguished %y the
de%tor<s ma4ing payment to the e/tent of his means 0hen the de%t %ecomes due.
8. "hat the several creditors of the same de%tor hold successive liens upon his property
for the full amount of their de%ts in the order in 0hich their de%ts respectively 0ere
contracted.
It 0ill hereafter %e sho0n that these several principles are legal ones founded in natural
and constitutional la0 that is %inding upon all our 2udicial tri%unals and incapa%le of
%eing invalidated or set aside %y any legislative enactments that are 0ithin the
constitutional po0er of any of our governments.
It has already %een sho0n in part ho0 these principles are adapted to the
accomplishment of the follo0ing o%2ects to 0it:
3. "hat of ena%ling each poor man to o%tain on credit capital sufficient to employ his
o0n hands upon.
6. "hat of ena%ling him to o%tain this capital on the most advantageous terms as to
interest and in the most advantageous form for his use.
7. "hat of ena%ling him to o%tain this capital on credit 0ithout the ris4 of incurring an
arrearage of de%t in case of misfortune or of miscalculation on his part as to his a%ility
to pay in full.
8. "hat of ena%ling capitalists to loan capital to poor men and hold the first lien upon it
in the hands of the de%tor for their payment5 and 0ithout the ris4 of having the capital
so loaned ta4en and applied either %y the la0 or %y the de%tor to the payment of de%ts
to other men.
If such %e the operation of these principles it seems to follo0 that if they 0ould not
fully they 0ould yet very nearly accomplish the o%2ect of securing to every poor man
0ho 0as honest industrious and ordinarily s4ilful the en2oyment of his right to la%or
to the %est possi%le advantage '%y ena%ling him to o%tain capital upon 0hich to la%or(
and also of his right to the possession of all the fruits of his la%or e/cept 0hat in the
nature of things must %e paid for the use of the capital upon 0hich he la%ors.
If there can %e any dou%t as to such %eing the result of these principles it can arise only
from a dou%t 0hether capitalists 0ould loan their capital to la%orers or poor men if the
principles of la0 applica%le to the loan 0ere such as have %een descri%ed. "his
3C
1uestion therefore %ecomes important vi:. 0hether capitalists 0ould loan capital to
poor men under such circumstancesA
"he true ans0er to this 1uestion is that although they might not do it immediately they
yet 0ould do it speedily&and for the follo0ing reasons:
3. It is o%vious that other things %eing e1ual it 0ould %e much more safe for capitalists
especially 0hen they loan on personal security to loan their capital in small sums to a
large num%er of individuals 0ho 0ere each their o0n employers than in large sums to
a small num%er 0ho employed the la%or of others. It 0ould for instance %e much more
safe to loan fifty thousand dollars in sums of five hundred dollars each to one hundred
men 0ho should each %esto0 their o0n la%or upon it than to loan the 0hole fifty
thousand to one man 0ho should employ an hundred other la%orers in the management
of it. Each of the one hundred men 0ould %e more li4ely to repay the 0hole of his five
hundred dollars than the one man to repay the 0hole of his fifty thousand dollars. *nd
0hyA 9ecause a man can manage 0ith far less ris4 and 0aste and 0ith much more
comparative profit a capital of five hundred dollars on 0hich he e/pends his o0n and
only his o0n la%or s4ill and calculation than he can a capital of fifty thousand dollars
on 0hich he is o%liged to employ the la%or of an hundred others 0hose s4ill industry
and economy he cannot stimulate to the same degree to 0hich they 0ould %e
stimulated 0hen la%oring for themselves. Small %orro0ers are also less li4ely to
s1uander their loans in e/travagant living and in e/travagant fanciful and ha:ardous
enterprises than large %orro0ers. "he command of large %orro0ed capitals often
into/icates men 0ith the conceit of their superior 2udgment in the management of
property or 0ith a vain am%ition for display or 0ith dreams of sudden 0ealth or 0ith a
passion for magnificent schemes&the conse1uences of all 0hich are told in deep
perhaps ruinous losses to their creditors. -n the other hand a man 0ho %orro0s merely
capital enough to employ his o0n hands upon avoids this into/ication entirely. )e
thin4s only of results and of s4ill industry and frugality as the means. "he small
%orro0er is therefore much more li4ely than the large %orro0er to %e a%le to repay his
loan. )e is also much more li4ely to %e 0illing to repay it. "he temptation to fraud in
his case is trivial compared 0ith that in the case of the other.
6. In the case of small loans to a large num%er of individuals each individual is not only
more li4ely for the reasons already given to repay the loan than the single individual is
in the case of a large loan %ut there is this further security 0hich is of great
consideration 0ith capitalists 0ho loan money vi:. that in cases of misfortune or fraud
on the part of a de%tor the loss is small not ruinous. If the hundredth de%tor fail to pay
the ninety;nine are still solvent. "he capitalist is not ruined. )e loses %ut one per cent.
of his 0hole capital. 9ut in the case of the large loan if the de%tor fail the creditor is
ruined or seriously in2ured&simply %ecause he has em%ar4ed a large freight in one
ship.
Capitalists understand these principles as 0e see in the case of insurance companies
0hich act uniformly on the policy of ta4ing a large num%er of small ris4s in preference
to a fe0 large ones.
7. "here is still another consideration in favor of small loans to a large num%er of
individuals 0ho are their o0n employers over large loans to a small num%er 0ho
employ the la%or of others. It is this. "he la%or of individuals 0ho la%or for themselves
3E
alone %eing for the reasons already given much more productive economical and
profita%le than the la%or of hirelings individuals could afford to pay a higher rate of
interest&much higher if it 0ere necessary&for the little capital that each man needs to
employ his o0n hands upon than they can for capital on 0hich to employ the la%or of
hirelings.
"he higher self;respect also 0hich a man feels and the higher social position he en2oys
0hen he is master of his o0n industry than 0hen he la%ors for another 0ould induce
him if it 0ere necessary to pay even such a rate of interest for capital as 0ould cut
do0n the not profits of his la%or to the same amount that he 0ould receive as a la%orer
for 0ages.
"he inevita%le result of these principles 0ould %e that the class of employers 0ho no0
stand %et0een the capitalist and la%orer and %y means of usury la0s sponge money
from the former and la%or from the latter and put the plunder into their o0n poc4ets
0ould %e forced aside5 and the capitalist and la%orer 0ould come together face to face
and ma4e such %argains 0ith each other as that the 0hole proceeds of their 2oint capital
and la%or 0ould %e divided %et0een themselves instead of %eing %esto0ed in part as
no0 as a gratuity upon an intermediate intruder. "he capitalist 0ould not only get all
he no0 gets as interest and the la%orer all he no0 gets as 0ages %ut they 0ould also
divide %et0een themselves that sum 0hich no0 goes into the poc4ets of the employer.
=hat portion of this latter sum 0ould go to the la%orer and 0hat to the capitalist 0ould
depend upon the circumstances and %argains in each particular case. "he pro%a%ility is
that for the first fe0 years after these principles 0ent into operation capitalists 0ould
as4 and o%tain a pretty high rate of interest. "he competition among la%orers in their
%ids for capital 0ould produce this effect. 9ut as the general safety of the system
should %e tested and as la%orers should gradually ma4e accumulations 0hich 0ould
serve as some security for loans and as the %usiness of %an4ing should %e increased the
rate of interest 0ould gradually decline until&pro%a%ly 0ithin ten or t0enty years&
capital 0ould go %egging for %orro0ers and the current rate of interest 0ould pro%a%ly
not e/ceed three or four per cent. *nd all the proceeds of la%or and capital over and
a%ove this interest 0ould go into the poc4ets of the la%orer.
"here o%viously 0ould %e little or no ris4 in loaning capital to the generality of la%orers
if the lender could hold the first lien upon the capital loaned5 for industry guided %y
ordinary s4ill and 2udgment in the application of la%or is almost certain to add more
value to the capital employed than is necessary for the comforta%le su%sistence of the
la%orer. "he cases 0here it 0ould fail of doing this are fe0 and even in those fe0
cases the deficiency 0ould %e very small. "he principal ris4 then in loaning to a poor
man 0ould %e the ris4 of his death and of loss in 0inding up his affairs. 9ut this ris4
could %e guarded against %y the de%tor<s 4eeping his life insured. "he cost of 4eeping
his life insured for an amount e1ual to the capital he hired 0ould not ordinarily %e more
than one or at most t0o per cent. upon that capital. *nd he 0ould thus accomplish the
dou%le purpose of giving his creditors a guaranty for their loans in case of his death and
of securing something for the support of his family.
"he ris4 of loss to the creditor from the death of his de%tor is no0 made altogether
greater than it other0ise 0ould %e %y those la0s that give to a deceased de%tor<s
family 'at the discretion of a Pro%ate Judge( the 0hole or a part of the effects in his
hands in preference to applying them to the payment of his de%ts. Such la0s are as
3F
in2urious to0ards de%tors as a class as they are un2ust to0ards creditors. "hey virtually
for%id capitalists to loan capital to a poor man under penalty of %eing compelled to
contri%ute the amount of such loans to the support of his family in case of his decease.
Such a%surd and dishonest legislation defeats the very o%2ect it professes to have in
vie0. Instead of its accomplishing the purpose of compelling creditors to support the
families of poor men it only serves as a general rule to deter capitalists from %ecoming
the creditors of poor men at all. "hus the la0s not only fail of providing for a poor
man<s family after his death %ut they contri%ute largely to ma4e it impossi%le for him
0hile living to %orro0 capital upon 0hich to la%or and thus to ma4e any
accumulations of his o0n for their support.
"here is no 2ustice or even appearance of 2ustice in such la0s. If * have loaned capital
to 9 and ta4en a note for it he in e1uity holds a lien upon that property for his de%t. It
is unreasona%le to e/pect him to loan his capital to a poor man on any other condition.
*nd there is no more reason 0hy he should %e compelled to support the de%tor<s family
%y losing his lion in case of the de%tor<s decease than there is 0hy any other particular
individual should %e compelled %y la0 to support them %y gifts from his o0n poc4et. If
under these circumstances a de%tor die leaving his family destitute they must depend
for their support upon their o0n la%or and the assistance of relatives and friends or
upon such provision as the pu%lic ma4e %y general ta/ation for the support of all 0ho
have no other means of su%sistence. "here is no 2ustice in compelling those fe0
individuals 0ho may have %efriended or loaned capital to the de%tor in his lifetime to
assume the %urden of supporting his family after his death %y giving up to them their
lien on the capital they have loaned him. If a poor man 0ish to provide for his family in
case of his death he should 4eep his life insured. )e 0ill thus provide for his family
and his creditors too.
-ne o%2ect of these la0s is to thro0 upon the creditors of a deceased person a %urden
that might other0ise fall upon the pu%lic at large. 9ut their effect is to create ten times
as much pauperism as they prevent&%ecause they deter capitalists from loaning capital
to poor men and thus prevent the latter from ma4ing such accumulations in their
lifetimes as they other0ise might for the support of their families after their death.
It 0ill %e sho0n in a su%se1uent chapter that all legislation of the 4ind mentioned
0hich destroys a creditor<s lien on the effects of his de%tor in order to give them to the
de%tor<s family is unconstitutional and void.
If the ris4 of loss to the creditor %y the death of the de%tor 0ere o%viated in the manner
no0 suggested and if the prior creditor held a prior lien upon the property of his de%tor
there 0ould %e little or no danger in loaning capital to poor men in amounts sufficient
to employ their o0n hands respectively.
"he ris4 of the de%tor<s success in %usiness 0ould %e small&as small as the ris4 of
success can %e in any %usiness in 0hich capital is ha:arded&%ecause the %usiness in
0hich each de%tor 0ould employ his %orro0ed capital 0ould %e such as %oth himself
and his creditor should have approved&inasmuch as the creditor 0ould not of course
loan his capital to a poor man unless he should have first ascertained the %usiness in
0hich it 0as to %e employed and satisfied himself that it 0as a safe one. "he %usiness
therefore in 0hich each de%tor 0ould employ his %orro0ed capital 0ould %e such as
commended itself 'in its prospects of profit( to the 2udgments of %oth de%tor and
3G
creditor. Such %usiness 0ould ordinarily %e more safe than that in the planning of
0hich the 2udgment of only one person had %een consulted.
"he ris4s from fire theft sic4ness of the de%tor and his family and other e/traordinary
misfortunes 0ould %e no greater than those to 0hich property is al0ays lia%le and
0ould %e guarded against %y the creditor %y the rate of interest.
"he only remaining ris4 to the creditor is that of the frugality and industry of the
de%tor.
"here are undou%tedly persons 0ho if they could %orro0 money 0ould %e idle and
prodigal so long as it lasted 0ith little regard either to the rights of their creditors or to
their o0n su%se1uent interests. 9ut such persons are very fe0 and their prodigal ha%its
generally %ecome so pu%licly 4no0n that capitalists 0ould %e in very little danger of
loaning money to them through ignorance of their characters.
9ut the mass of men 0hen they have in their hands the means of %ettering their
condition are :ealous to do it5 and if they could %orro0 capital on 0hich to %esto0
their la%or and could have all the fruits of their la%or e/cept 0hat they should pay as
interest they 0ould almost universally e/ert themselves %oth %y industry and frugality
to ma4e such accumulations as 0ould place themselves %eyond the reach either of
poverty or of dependence upon loans from others. *nd 0here such e/ertions 0ere
made they 0ould %e successful 0ith %ut fe0 e/ceptions5 and those fe0 e/ceptions
0ould generally %e the result only of some such unusual misfortune as property and
%usiness are al0ays lia%le to. In fe0 or no cases 0ould any considera%le portion of the
loan %e sun4 %y mismanagement or erroneous 2udgment on the part of the de%tor&for
as loans 0ould usually %e made for no longer than three or si/ months each there 0ould
not %e opportunity for much 0aste of capital unless %y mismanagement that 0as so
gross as to %e culpa%le or %y misfortunes of rare and e/traordinary character. In all
other cases then capitalists 0ould either o%tain the 0hole of their loans 0ith interest or
at least the greater part of their loans. "he pro%a%ility is that in the aggregate of loans
the 0hole amount of losses 0ould not %e one fifth or even one tenth as great as
capitalists suffer under the present system. "he system as a system&at least during the
first fe0 years of its operation&0ould %e altogether %etter for capitalists than the
present one&for the losses 0ould %e less and the rates of interest higher. Competition
on the part of %orro0ers 0ould produce this result.
9ut it is to %e understood that this state of things&this competition among %orro0ers
arising from poverty on the part of so large a portion of the community as are no0 poor
&could continue %ut a short time. !ost of them&particularly those in the full vigor of
life&0ould at once %egin to reali:e more from their la%or than 0ould %e necessary for
their su%sistence and the payment of their interest. "he 0or4 of accumulation 0ould %e
at once %egun5 and they 0ould speedily %e in possession of sufficient ac1uisitions of
their o0n to serve as security against all reasona%le ris4s in their %usiness5 and such
persons 0ould then %e a%le to %orro0 money at lo0er rates of interest than at first. In a
very fe0 years they 0ould have made such accumulations as 0ould %e sufficient to
employ their o0n hands independent of loans from others. In a fe0 years more they
0ould themselves have small amounts to loan to others. "he tendency of the system
0ould %e to individual accumulations %y the mass of the people. "he num%er of
%orro0ers 0ould decrease5 the rate of interest 0ould decline until finally it 0ould
6H
pro%a%ly %e no more than three or four per cent. and capital 0ould have to go in search
of %orro0ers at that.
"he manifest tendency of the system 0ould %e to give to each man separately the use of
sufficient capital to employ his o0n hands upon5 to give him the use of this capital at
the lo0est possi%le rate of interest that is consistent 0ith free competition among
%orro0ers5 and to give him the entire fruits of his la%or e/cept 0hat he pays as interest.
=hat more consistently 0ith the rights of property can %e done to distri%ute 0ealth
2ustly among those 0ho earn it or to e1uali:e the pecuniary condition of man4indA
"he result of the system 0ould %e that the future accumulations of society instead of
%eing held as no0 in large estates %y a fe0 individuals 0hile the many 0ere in
poverty 0ould %e distri%uted in small estates among the mass of the people. "he large
estates already ac1uired %y single individuals 0ould in t0o or three generations at
most %ecome entirely scattered. *fter0ards 0e should see no such ine1ualities in the
pecuniary conditions of men as no0 e/ist. "here 0ould pro%a%ly never %e any very
large estates accumulated on the one hand nor 0ould there %e any general poverty on
the other. Some fe0 incompetent or improvident individuals might al0ays %e poor5 %ut
there 0ould %e no such general poverty as no0 prevails among those 0ho 0ere honest
industrious and frugal.
"he aggregate accumulations of society 0ould pro%a%ly %e greater than they are no0&
for then every man %eing dependent upon his o0n la%or for his su%sistence all 0ould of
necessity la%or instead of a part only as no0. !en la%oring for themselves 0ould also
la%or 0ith more s4ill and energy and practise more economy in the use of capital than
0hen la%oring for others. "here 0ould %e less capital s1uandered in lu/ury and display
and in e/travagant and fanciful schemes than no0 %ecause fe0 or none 0ould ever
have fortunes large enough to ena%le them to indulge in ostentation and prodigality. "he
conse1uence so far as these causes alone 0ere concerned 0ould therefore pro%a%ly %e
that the aggregate accumulations of society 0ould %e greater than they no0 are. 9ut it is
of little moment 0hether they 0ould %e greater or less. $istri%ution is of infinitely more
conse1uence than accumulation. -ur present accumulations are 1uite large enough if
not altogether too large unless they can %e more e1ually distri%uted. "he lu/ury the
vices the po0er and the oppressions of the overgro0n rich and of those 0ho are
%ecoming such at the e/pense of other men<s rights are pro%a%ly much greater evils
than the simple poverty of the poor 0ould %e if it 0ere the result of natural and
necessary causes.
9ut the po0er of the one great agent of accumulation&la%or;saving machinery&0ould
%e greatly increased under the system proposed %eyond 0hat it is or ever can %e under
the present system. *nd 0hyA Simply %ecause the e/treme neither of poverty nor of
0ealth is favora%le to invention. "he man 0ho has much 0ealth is either too much
engrossed %y the care of it or too much sun4 in the lu/urious indulgencies it affords to
have either time or inclination left for such mental e/ertions as are re1uired for
mechanical invention. -n the other hand the man 0hose e/treme poverty leaves him
no respite from manual toil and affords him no accumulations %eyond his daily %read
has no opportunity to cultivate any mechanical genius 0ith 0hich nature may have
endo0ed him or to mature and reali:e any mechanical conceptions that may visit his
mind&%ecause to do so 0ould re1uire leisure su%sistence and some little capital 0ith
0hich to ma4e e/periments. "hus the t0o e/tremes of society contri%ute nothing to the
63
list of mechanical inventions. #either the serfs nor the no%les of Russia neither the
slaves nor the slaveholders of *merica neither the no%ility nor the starving portion of
the population of England and Ireland ma4e la%or;saving inventions. -n the other
hand in #e0 England 0here 0ealth is more e1ually distri%uted than perhaps in any
other portion of the 0orld more la%or;saving inventions are pro%a%ly made than %y any
other people of e1ual num%er on the glo%e. *nd if the 0ealth of #e0 England 0ere
distri%uted still more e1ually among the population and if men la%ored more for
themselves respectively and less for others for 0ages the num%er of valua%le
inventions 0ould undou%tedly %e still greater&%ecause if the 0ealth 0ere more
e1ually distri%uted fe0 or none 0ould %e so rich as to have their inventive po0ers
smothered or stupefied %y lu/ury or over0helmed %y the care of their 0ealth5 and on
the other hand fe0 or none 0ould %e so destitute as to have their po0ers fettered %y
poverty. 9ut all or nearly all 0ould %e precisely in those moderate circumstances that
0ould at once stimulate their minds to the greatest activity and also afford them leisure
and capital for e/periments. "he practice of each man<s la%oring for himself instead of
la%oring for another for 0ages&0hich practice 0ould %e greatly promoted %y a greater
e1uality of 0ealth&0ould also contri%ute to the increase of la%or;saving inventions&
%ecause 0hen a man is la%oring for himself and is to have all the proceeds of his la%or
he applies his mind 0ith his hands much more than 0hen he is la%oring for another.
*nd this ha%itual use of men<s minds along 0ith their hands in la%or 0ould
undou%tedly give %irth to multitudes of inventions that 0ould other0ise never %e made.
=hen 0e consider the almost incalcula%le amount of la%or that is performed %y la%or;
saving machinery and the incalcula%le 0ealth it produces&ho0 many times greater
this la%or and 0ealth are than those performed and produced %y mere manual toil 0e
can hardly avoid forming some conception of the importance of la%or;saving inventions
to the 0ealth and comfort of man and of the importance of such a distri%ution of 0ealth
as 0ill most tend to increase the num%er of such inventions in future. =ithout these
inventions 0e should %e little else than savages. It is these inventions that give us our
comforta%le neat and even elegant d0ellings and our comforta%le %eautiful and
a%undant clothing. "hey also give us a%undant food %oth %y improving the implements
0ith 0hich 0e cultivate the soil and %y supplying our other 0ants 'than food( so easily
as to leave us a%undant time to cultivate the soil. "hey also give us numerous and easy
roads and easy and elegant carriages. "hey give us the rail;road car and the steam%oat.
"he la%or;saving printing press gives us those a%undant means of 4no0ledge 0hich
prevail in civili:ed over savage life.
*lthough the surplus accumulations made %y la%or;saving machinery over and a%ove
consumption are no0 held mostly %y a fe0 hands yet it is not the fault of the
inventions themselves that it is so5 %ut of the causes that have heretofore %een pointed
out as o%structing the general distri%ution of 0ealth. So far as actual consumption is
concerned the %enefits of la%or;saving inventions are distri%uted as e1ually among rich
and poor as are the %enefits of manual la%or. It is to la%or;saving machinery that the
poor no less than the rich are inde%ted for their present comforta%le d0ellings
a%undant clothing a%undant food good roads good carriages and such means of
4no0ledge as the printing press affords them. It is to la%or;saving inventions that 0e are
all of us mainly inde%ted that 0e are not no0 savages living in 0ig0ams clothed 0ith
the s4ins of %easts and comparatively destitute of 4no0ledge. *ll then are interested
in the increase of these inventions and in such an e1uali:ation of 0ealth as 'in the
manner already suggested( 0ill most promote their increase.
66
-ne such invention as Fulton<s adds more to the 0ealth of the 0orld than the mere
manual la%or of a 0hole generation. .et ho0 many Fultons in the past ages of the
0orld have had their genius smothered %y lu/ury or starved %y 0ant5 and ho0 has
poverty %een entailed upon the 0orld in conse1uence. =ho can conceive 0hat 0ould
have %een the present 0ealth of the 0orld %ut for the 0ant of opportunity on the part of
inventors to enrich it %y the productions of their geniusA 9ut 0ar and monopoly
'0hich is %ut a species of 0ar( have ever %een employed in 4illing and starving
man4ind5 0hen 0ith peace and e1uality of privileges the la%ors of inventors 0ould
have made the earth one universal garden and given in profusion to 0hat then 0ould
have %een its countless population 4no0ledge comfort and plenty.
"he mind of man is fertile of invention almost %eyond conception. *ll it needs is
stimulus and opportunity to develope itself. *nd since every invention made %y a single
individual enures to the %enefit of man4ind at large man4ind at large are interested in
placing each individual in such a pecuniary condition as that his mind 0ill receive the
proper stimulus and en2oy the proper opportunity. *nd that condition is one neither of
poverty nor riches5 %ut of moderate competency&such as 0ill neither enervate him %y
lu/ury nor disa%le him %y destitution5 %ut 0hich 0ill at once give him an opportunity to
la%or '%oth mentally and physically( and stimulate him %y offering him all the fruits of
his la%or.
C)*P"ER IV.
S-CI*L !-R*L I#"ELLEC",*L *#$ P-LI"IC*L RES,L"S FR-! ")E
PRECE$I#+ PR-P-SI"I-#S.
Social Results. "o appreciate in some measure the important social influences of the
preceding propositions it is only necessary to consider that that portion of human
virtue 0hich consists in one<s doing good to others than himself depends almost
entirely upon sympathy&upon one<s suscepti%ility of %eing affected %y the feelings of
others5 and that this sympathy or suscepti%ility is mostly if not 0holly the result of his
having had in some measure a similar e/perience 0ith others or of his having had
social relations 0ith them. "hus those 0ho have %een sic4 sympathi:e 0ith the sic45 the
sorro0ful sympathi:e 0ith the sorro0ful5 the merry 0ith the merry5 the rich sympathi:e
0ith the rich5 the poor 0ith the poor5 the learned 0ith the learned5 the vicious 0ith the
vicious5 4ings 0ith 4ings5 slaves 0ith slaves5 and all men more or less 0ith their
immediate personal ac1uaintances. *nd it is from the sympathy thus e/cited %y
personal intercourse or %y a similarity of e/perience that much perhaps most of the
4indness sho0n %y one human %eing to0ards another results. -n the other hand much
of the indifference or 0ant of 4indness manifested %y one man to0ards another is the
natural result of his having had little or no similar e/perience or little or no personal
ac1uaintance 0ith him. "hus 4ings sympathi:e little 0ith the people and the people
little 0ith 4ings5 slaves sympathi:e little 0ith masters and masters little 0ith slaves5 the
rich sympathi:e little 0ith the poor and the poor little 0ith the rich5 and fe0
sympathi:e much 0ith strangers.D
So again most or all of the hatred and in2ustice felt and practised %y one man to0ards
another results from the fact that the points of collision in men<s characters and
interests are not rounded and smoothed and softened %y the 4indly influences of
sympathy and ac1uaintance. !uch of the hatred e/isting among man4ind is the hatred
of class against class&of classes against other classes 0ith 0hom they have little
67
personal ac1uaintance or little common e/perience. "he rich do not hate the rich as a
class5 nor the poor the poor. 9ut the rich hate and despise the poor and the poor hate
and envy the rich5 and it is solely or principally %ecause these t0o classes have not
sufficient personal ac1uaintance and sufficient similarity of e/perience 0ith each other
to a0a4en their sympathies and thus soften or avert the collision of their feelings
interests and rights. "hus the rich 0ill often defraud oppress and insult the poor and
the poor defraud and commit violence upon the rich 0ith less compunction than the
same individuals 0ould have defrauded in2ured or insulted one of their o0n num%er.
*nd every man 0ho 0ill defraud others at all 0ill more 0illingly defraud a stranger
than an ac1uaintance.
Such %eing the la0s of men<s minds and such the conditions on 0hich so large a
portion of men<s virtue to0ards each other depends it is o%viously a matter of the
highest social importance that men&so far as it can %e effected 0ithout infringing their
individual li%erties and rights&should occupy such situations and circumstances
relatively to each other as 0ill promote the 0idest personal ac1uaintance and the
nearest similarity of e/perience among them all. "o the accomplishment of this end
perhaps nothing is more conducive or indispensa%le than an appro/imation to e1uality
in their pecuniary conditions. E/tremes of difference in their pecuniary circumstances
divide society into castes5 set up %arriers to personal ac1uaintance5 prevent or suppress
sympathy5 give to different individuals a 0idely different e/perience and thus %ecome
the fertile source of alienation contempt envy hatred and 0rong. 9ut give to each man
all the fruits of his o0n la%or and a comparative e1uality 0ith others in his pecuniary
condition and caste is %ro4en do0n5 education is given more e1ually to all5 and the
o%2ect is promoted of placing each on a social level 0ith all5 of introducing each to the
ac1uaintance of all5 and of giving to each the greatest amount of that e/perience 0hich
%eing common to all ena%les him to sympathi:e 0ith all and insures to himself the
sympathy of all. *nd thus the social virtues of man4ind 0ould %e greatly increased.
!oral Results. Important moral results other than those already mentioned as social
0ould %e accomplished %y carrying into operation the principles that have %een set forth
in the preceding propositions. "o %e convinced of this 0e have only to loo4 at all the
criminal and vicious individuals in the community and see ho0 many of their crimes
and vices can %e traced either to their supera%undant 0ealth their e/treme poverty their
desire for 0ealth or their fear of poverty.
3. "hose grosser offences against the rights of property that are punisha%le %y society
as crimes such as theft ro%%ery forgery and s0indling result not from the love of
crime %ut almost 0ithout e/ception from one or another of these three sources vi:. the
sufferings of actual poverty5 the fear of coming poverty5 or a desire for those lu/urious
displays and indulgences 0hich the perpetrators see to %e en2oyed %y the possessors of
0ealth. *nd all these motives to crime are aggravated and individuals are often goaded
to rec4lessness and audacity %y that hatred of society and that sense of outrage and
0rong 0hich result from the o%servation of those great ine1ualities of condition those
e/tremes of poverty and 0ealth 0hich are %rought a%out %y that monopoli:ing and
ini1uitous legislation 0hich 0hile it deprives the many of their natural right to o%tain
capital on 0hich to la%or and of their natural right to all the fruits of their la%or
ar%itrarily gives to the fe0 the command of all the loana%le capital and conse1uently
the control and a large part of the fruits of other men<s la%or.
68
9ut if the principles of the preceding chapters 0ere administered as la0 the crimes
resulting from these sources 0ould mostly disappear. "he causes no0 impelling to the
commission of them 0ould rarely e/ist. #early every man 0ould %e a%le to control his
o0n la%or and secure to himself the 0hole of its fruits 'e/cept 0hat he should pay as
interest on his capital5( and these 0ould save him from that e/treme poverty 0hich
instigates to crime. !onopolies also %eing %ro4en do0n there 0ould %e little or no
great 0ealth in the hands of single individuals to e/cite his envy or his desire for
lu/ury and display. )e 0ould %e a%le 0ithout crime to maintain a position near enough
to the general level of society to save him from the temptation to crime.
6. "hose innumera%le frauds that pervade every department of traffic %ut are not of that
tangi%le character that can %e proved and punished %y society result in an important
portion of the cases from a fear of poverty and in another important portion from a
desire of that superior 0ealth 0hich the fe0 ac1uire %y means of monopoli:ing
legislation and 0hich constitutes one of the principal distinctions of society. 9ut if the
propositions advocated in the preceding chapters 0ere carried into effect the motives
to these frauds 0ould %e in a great measure e/tinguished5 %ecause 3 there 0ould %e
no such lia%ility to e/treme poverty as no05 and 6 there %eing then fe0 or no great
fortunes in society %ut on the contrary a some0hat general e1uality in 0ealth large
fortunes 0ould not as no0 constitute the foundation for castes and distinctions5
conse1uently they 0ould not %e o%2ects of such general am%ition as no05 and of
course 0ould not prompt men so often as no0 to the commission of frauds for the
sa4e of o%taining them. #either 0ould the possession of them 0hen ac1uired %y fraud
%e such a salve to a man<s character as no0. =ealth is no0 such a mar4 of distinction
and honor that society palliate if they do not 2ustify almost any measure short of open
crime to secure it. 9ut under a system 0here every man could easily o%tain capital on
0hich to la%or and could have all the fruits of his la%or5 and 0here there 0as such a
general e1uality of 0ealth as 0ould necessarily result from those t0o causes there
0ould %e no caste or distinction founded on 0ealth5 superior 0ealth 0ould not %e at all
necessary to give one reputation5 all men as a general rule could honestly o%tain all the
0ealth that 0ould %e necessary to their respecta%ility5 and they 0ould have little
temptation as no0 to forfeit their character for integrity for the sa4e of ac1uiring a
degree of 0ealth that 0ould give them no mar4ed importance in society.
It is manifest also that the present precariousness of men<s pecuniary condition is a great
provocative to in2ustice and fraud. It is not natural to man4ind to desire to defraud or
in2ure each other. 9ut the 0heel of fortune in the present state of things is of such
enormous diameter5 those on its top are on so sho0y a height5 and those underneath it
are in such a pit of de%t oppression and despair5 and its revolutions are so rapid
unsteady and convulsive that it is no su%2ect of 0onder that those on its sides should
feel compelled %y the necessity of self;preservation to 2ostle and cheat each other out
of their footing in order to sei:e a secure one for themselves. 9ut under the system
proposed fortune could hardly %e represented %y a 0heel5 for it 0ould present no such
height no such depth no such irregularity of motion as no0. It should rather %e
represented %y an e/tended surface varied some0hat %y ine1ualities %ut still e/hi%iting
a general level affording a safe position for all and creating no necessity for either
force or fraud on the part of any one to ena%le him to secure his standing.
7. Intemperance is another of the vices attendant upon supera%undant 0ealth and
e/treme poverty. "he rich often %ecome lu/urious gluttonous and drun4en apparently
6B
%ecause life hangs heavy on their hands. 9eing relieved from the necessity to la%or they
feel little motive to that healthful industry 0hich is the companion and guardian of
temperance5 and their minds having %een starved 0hile they 0ere engaged in hoarding
their 0ealth they are no0 incapa%le of intellectual pursuits and have little or no
resource against ennui %ut in animal indulgences. -n the other hand the intemperance
of the poor is the natural conse1uence of the e/tremities of their condition. "he
e/citement or the stupor of into/ication %rings at least a temporary relief from the
an/ieties that harass and unsettle their minds and drive them to desperation.
8. +am%ling also naturally results from too much 0ealth and too severe poverty. "he
rich gam%le for e/citement and %ecause they can afford or thin4 they can afford the
ris4s. "he poor gam%le in the hope of gain&tempted %y the prospect of fleecing the
rich or driven to it %y the hopelessness of their o0n condition.
B. Le0dness&the destroying vice of society&is enormously increased if not mainly
supported %y the precariousness and the ine1uality of men<s pecuniary condition. "he
rich %ecome lustful and li%idinous from idleness and lu/ury and their 0ealth ena%les
them to purchase the gratification of their desires. "he poor %ecome rec4less from 0ant
or from envy of the rich5 and sell their virtue for %read or for the means of display.
Purity d0ells 0ith moderate competence 0ith the simple %oard 0ith the modest gar%
and 0ith cheerful industry.
"he ruin of the young particularly of young females is mostly accomplished %y means
of their a%sence from home. "hey are generally safe in their father<s house. 9ut the
same 0ant of capital that compels a poor man to sell his o0n la%or compels him also to
sell the la%or of his children5 and to send them in their youth %eyond his o0n roof or
farm to occupy some menial situation in a rich man<s service 0here toil oppression
insult neglect and loneliness are their lot5 0here fe0 or no 4ind counsels meet their
cars5 0here no friendly eye 0atches over their 0ays and no guardian hand protects
them from the dangers that cro0d around them. =hat armies of the youth of %oth se/es
are annually driven %y poverty from the parental roof and parental care to see4 menial
employment in manufacturing and commercial to0ns and to fall sacrifices to their o0n
ine/perience and the enticements of the li%ertines that s0arm in such places.
If every man could o%tain the capital necessary to employ his o0n hands and the hands
of his family children 0ould %e reared at home much more generally than no0. It
0ould rarely %e necessary for daughters to go a%road for employment5 and never to
occupy servile and degraded situations as no0. *nd if daughters only 0ere to %e reared
uniformly at home society 0ould %e pure compared 0ith 0hat it is no0. It 0ould often
%e necessary for sons to go from home to learn some different calling from that
follo0ed %y their fathers5 %ut they 0ould not %e driven from home %y poverty. *nd not
%eing driven from home %y poverty they 0ould not %e driven into servile and degraded
situations 0here their loneliness and misery 0ould urge them into vice. *s there 0ould
then %e no such e/tremes of poverty and 0ealth as no0 a son leaving his father<s
house for employment 0ould not leave an a%ode of 0ant to %ecome a menial in the
mansion of the rich5 he 0ould merely leave one comforta%le and virtuous home for
another of li4e character in a family situated in pecuniary respects much li4e his o0n
and in 0hich he 0ould %e an e1ual and respected perhaps cherished mem%er instead of
a menial and an outcast. In such a situation his morals 0ould %e much more safe than
0hen driven %y poverty into a servile and lonely condition 0here he 0ould meet no
6C
sympathy from the family 0ith 0hich he lived and find no virtuous companionships to
4eep him from vice.
"hat general e1uality of condition and that pecuniary independence 0hich should
ena%le parents al0ays to rear their children at home or 0hich should merely save them
from the necessity of placing them a%road e/cept in situations and families 0here the
0ant of parental 4indness and 0atchfulness 0ould %e in some good measure supplied
to them 0ould save almost countless multitudes of the youth of %oth se/es from the
ruin that no0 overta4es the neglected and outcast children of poverty.
9ut the system proposed 0ould promote chastity in still another and perhaps even more
effectual 0ay to 0it %y ma4ing marriage nearly universal and %y inducing it in early
life. Celi%acy is the great cause of licentiousness. If all men 0ere to %e married in early
life there 0ould %e very little li%ertinism&for although li%ertinism no0 invades
married life it does not originate there. Its principal source is in the unnatural and
solitary state of large num%ers of %oth se/es. "he se/es are so nearly e1ual in num%er
that if all of either se/ 0ere married there 0ould not %e enough of the other left
unmarried to give rise to any general profligacy.
"he desire of matrimony is so strong and universal and manifests itself so early in life
that nearly all 0ould %e married at an early age if their pecuniary circumstances 0ould
admit of it. "he causes of a pecuniary nature that prevent universal and early
marriages are these:
3. .oung men cannot esta%lish themselves in %usiness of their o0n immediately on
attaining their ma2ority %ecause they cannot o%tain capital on 0hich to employ their
la%or. ,ntil they can o%tain capital and thus esta%lish themselves they do not 0ish to
marry %ecause their station in society 0ill not %e agreea%le or %ecause their income
0hile la%oring for others 0ill not give them a sufficient support. 9ut if freedom in
%an4ing and freedom in the rate of interest and the prior right of the prior creditor to
the property of the de%tor 0ere recogni:ed as la0 there 0ould %e no difficulty in a
young man<s %orro0ing capital enough to employ his o0n hands upon5 and his %eing
married 0ould improve instead of in2uring his chance of o%taining it5 %ecause his %eing
married 0ould afford his creditor an additional guaranty for his industry economy and
morality. -ther things %eing e1ual a married man can al0ays o%tain %oth credit and
employment in preference to an unmarried one.
6. !en<s fortunes in the present state of things are so precarious&there is so much
danger that a man 0ho is in comforta%le circumstances to;day may %y some of the
ha:ards of trade lose his property to;morro05 and not only lose it %ut %e left 0ith a
de%t upon him 0hich 0ill %e a charge upon his future earnings and an o%stacle in the
0ay of his %orro0ing the capital necessary to ma4e his industry lucrative&there are so
many dangers of this 4ind that a prudent man dare not marry until he has accumulated
as he thin4s property enough to protect him to some reasona%le e/tent against the
chances of misfortune. )e therefore lives unmarried for years solely to ma4e this
accumulation. 9ut if the o%ligation of de%ts attached only to the property that a man
should have 0hen his de%t should %ecome due and not to his earnings after0ards so
that he could al0ays ac1uit himself of his de%ts %y paying to the e/tent of his means
this danger of %eing over0helmed in de%t and conse1uent poverty 0ould %e removed.
)e 0ould 4no0 that he could al0ays %e at least a free man if not a rich one5 and that he
6E
could al0ays %e sure at least of his earnings for the support of his family5 and that if he
could get capital 'as he could under the system proposed( sufficient to employ his o0n
hands upon he could al0ays support them in a condition of respecta%ility.
7. * third motive 0ith many persons for postponing matrimony is the desire of first
accumulating sufficient 0ealth to ena%le them to maintain a domestic esta%lishment of
such elegance and cost as 0ill %ring them 0ithin the caste or circle distinguished %y
0ealth and display. 9ut if the system proposed 0ere carried into effect it 0ould
produce such a comparative e1uality in men<s conditions that there 0ould %e no ran4 or
caste founded on such distinctions5 and thus this motive to the postponement of
marriage 0ould %e removed.
"hus the various motives of a pecuniary nature 0hich no0 operate to dissuade or deter
men from early matrimony 0ould %e in a great measure removed %y the system
proposed5 and the morals of society 0ould %e very greatly purified %y the change.
,nder the present system 0e see society agitated %y the efforts of individuals
associations and of society as large to chec4 the several crimes frauds and vices that
have no0 %een enumerated and that seem sometimes to threaten all human virtue.
Legislatures courts prisons churches schools and moral associations of all sorts are
sustained at an immense cost of time la%or talent and money. .et they only mitigate
they do not cure the disease. *nd li4e all other efforts to cure diseases 0ithout
removing the cause they must al0ays %e inade1uate to the end in vie0. "he causes of
vico fraud and crime to 0it e/cessive 0ealth and e/cessive poverty must %e
removed %efore society can %e greatly changed. Just in proportion or very nearly in
proportion as these causes are removed 0ill the ignorance the vices the frauds and
the crimes of all sorts naturally resulting from them disappear.
Intellectual Results. "he intellectual advancement of society 0ould %e immensely
promoted %y the adoption of the system proposed. "o %e convinced of this 0e have
only to consider the follo0ing facts:
3. "he mental independence of each individual 0ould %e greatly promoted %y his
pecuniary independence. Freedom of thought and the free utterance of thought are to a
great degree suppressed on the part of a large portion of the poor in all countries %y
their dependence upon the 0ill and favor of others for that employment %y 0hich they
must o%tain their daily %read. "hey dare not investigate or if they investigate dare not
freely avo0 and advocate those moral social religious political and economical truths
0hich alone can rescue them from their degradation lest they should there%y sacrifice
their %read %y stirring the 2ealousy of those on 0hom they are dependent and 0ho
derive their po0er 0ealth and conse1uence from the ignorance and servitude of the
poor.
6. "he mass of the poor in all countries have %ut little leisure or means or opportunity
for intellectual cultivation. =herever capital is in the hands of the fe0 the competition
for employment among la%orers %ecomes so great as to reduce the price of la%or to a
sum that 0ill give the la%orer %ut a mean and 0retched su%sistence in return for the
severest toil of 0hich his %ody is capa%le. ,nder these circumstances intellectual
culture to any considera%le e/tent %ecomes an impossi%ility. Even the desire of it is in
a great measure crushed and %ut fee%ly animates the %reast of the mass of them. "heir
6F
thoughts are confined %y the pressure of their physical necessities almost 0holly to the
1uestions of 0hat they shall eat and ho0 they shall live.
=hen it is considered ho0 large a portion of the human race have in all ages %een thus
condemned %y e/treme poverty to an almost %rutish and merely animal e/istence5 that
their minds 0ere nevertheless naturally suscepti%le of the same cultivation and
development as those other minds that have %een cultivated and developed5 that they
needed for their gro0th %ut such an opportunity as all might have en2oyed if each man
could have controlled his o0n la%or and possessed its fruits5 that their intellects thus
enlightened 0ould have contri%uted their share e1ually 0ith others to the general
progress of 4no0ledge5 that among them must have %een a due proportion of superior
minds capa%le of %ecoming discoverers in science inventors in the arts and teachers in
morals religion and la05 0hen 0e consider these facts 0e cannot entirely shut out the
idea although 0e can form no ade1uate idea of 0hat the 0orld might no0 have %een if
so large a portion of its intellectual light had not %een thus needlessly and 0ic4edly
e/tinguished.
7. "he system proposed 0ould speedily result in the universal education of children.
"he universal education of children can in the nature of things never %e accomplished
e/cept through the universal a%ility of parents to provide the means of educating their
o0n children respectively. In some small portions of the most civili:ed parts of the
0orld educational systems have %een esta%lished 0hich give 4no0ledge to the children
of the poor at the pu%lic e/pense. .et under these systems children are %ut partially and
poorly educated in comparison 0ith 0hat they 0ould %e if all parents 0ere a%le to
meet the necessary e/penses of educating their o0n children. "hese systems too
defective and inade1uate as they are prevail in %ut small districts of the 0orld5 and if
e/tended at all can %e e/tended %ut slo0ly. !oreover they are %ut the unnatural and
forced productions of an unnatural state of society conse1uent on the unnatural
distri%ution of 0ealth. "hey merely constitute one of the remedies %y 0hich
government attempts to mitigate the evils of its o0n in2ustice to 0it the evils of that
monopoli:ing legislation %y 0hich they 4eep capital in the hands of the fe05 deprive
the many of their right to la%or independently for themselves5 ro% them of the fruits of
their la%or5 and thus render it impossi%le for them to educate their children. Such %eing
the character of pu%lic systems of education their perpetuity cannot %e relied on5 nor
can it even %e advocated e/cept on the supposition that a large or at least some0hat
considera%le portion of the people are al0ays to remain too poor to educate their o0n
offspring. *nd if they cannot %e relied on as permanent institutions 0here they already
e/ist still less can they %e loo4ed to as the means %y 0hich the 0orld at large is over to
%e universally educated. "he universal education of children can in the nature of things
never come from any other source than the universal a%ility of parents to provide for
their education. *nd this universal a%ility of parents can come from no other sources
than their li%erty to la%or5 their li%erty to %orro0 capital on 0hich to la%or5 and their
li%erty thus to secure to themselves all the legitimate fruits of their la%or.
8. "he intellect of society 0ould %e much %etter directed under the system proposed
than under any that has ever e/isted. It 0ould %e directed more to the service and
improvement of man as man5 and less to the aggrandi:ement of one portion of
man4ind at the e/pense of the other portions than it is or ever has %een under systems
0here 0ealth and po0er are distri%uted %y ar%itrary instead of natural and e1ual la0s.
"his system 0ould present no such great pri:es either of 0ealth or po0er as are
6G
presented %y e/isting systems to tempt the avarice and am%ition of those stronger
minds that have great capacities for %oth good and evil and that generally follo0 good
or evil according to the respective influences of each upon their o0n elevation. "he
system proposed 0ould %ring such men do0n very nearly to the same social political
and pecuniary level 0ith the mass of men5 and place entirely %eyond their reach and
their hopes those great fortunes and that great political po0er 0hich can no0 %e
o%tained and 0hich can only %e o%tained %y means of those ar%itrary political
arrangements that produce a corresponding poverty and su%2ection on the part of the
masses.
So long as society or its institutions offer a fe0 great pri:es either of 0ealth or po0er
for the ac1uisition of any one so long many of the more po0erful minds 0ill %e
engrossed in the pursuit of them. ,na%le to o%tain them 'inasmuch as they are in their
nature unattaina%le( consistently 0ith the e1ual rights of all they 0ill propose to secure
them %y sacrificing the rights of a part and sharing the spoils 0ith their adherents %y
means of partial and monopoli:ing legislation. "hus their contests 0ith each other 0ill
%e made to involve the interests 0elfare and rights of every other man&for every other
man is to %e made either a victim or a %eneficiary of some one or more of the various
schemes proposed %y the different competitors. "hus nearly every individual mind in
the community %ecomes occupied necessarily occupied as a party interested on one
side or the other in these strifes 0here po0er and plunder are the o%2ects of the
assailants and defence and retaliation the o%2ects of the assailed. Such contests not only
necessarily suspend to a great degree all those la%ors and studies that really advance
man as an intellectual and moral %eing or promote the impartial 0elfare of the race %ut
they actually divert a vast mass of mind into pursuits&of monopoly and 0ar&that have
for their o%2ects in2ury and destruction to man4ind at large. !uch of the intellect of
society under such circumstances is not merely 0asted as regards purposes really
%eneficial to all man4ind5 it is 0orse than 0asted5 it is e/erted for purposes of positive
detriment and in2ury.
Such selfish a%sor%ing and destructive agitations could evidently find no place under
institutions 0hich instead of offering da::ling pri:es to the fe0 should on the
contrary secure to each individual 0ithout discrimination the full en2oyment of his
right to la%or to hire capital on 0hich to la%or and to hold all the legitimate fruits of his
la%or. "he mass of men under such circumstances could not %e 0ithdra0n from the
1uiet en2oyment of their 2ust and natural rights and the pursuit of their highest interests
to enlist as they no0 do as mercenaries under the lead of am%itious rapacious and
unprincipled men or to lend themselves as tools in their ini1uitous enterprises of
avarice and aggrandi:ement. *m%ition therefore for 0ant of troops if for no other
reason 0ould %e o%liged to a%andon its 0ar upon the e1ual rights of men5 and to apply
itself to achievements that promise good instead of evil to man in the aggregate. "hus
preKminent minds that are no0 employed and e/hausted in the pro2ection and e/ecution
of great plans of rapacity and po0er in fierce struggles for the elevation of the fe0 and
the corresponding prostration of the many 0ould %e driven %y a sort of moral
necessity to see4 more peaceful employments. *nd these other employments 0ould
generally %e of such philosophical scientific or literary 4inds as active minds delight
in and such as conduce to the physical intellectual or moral advancement of the
human family at large. *nd man4ind at large %eing thus relieved from many of those
tur%ulent collisions 0hich no0 inflame their passions and pervert their 2udgments and
7H
having more leisure and 1uiet for intellectual pursuits 0ould rapidly ac1uire a more
humane and intellectual character.
Political Results. If the several propositions stated in chapter second 0ere recogni:ed as
la0 and if their effects upon the pecuniary conditions of men should %e such as it is
here claimed they 0ould %e the only true and rightful ends of all political institutions
so far as they relate to men<s pecuniary conditions 0ould seem to %e very nearly
accomplished. For 0hat rightful o%2ects have political institutions in reference to
pecuniary matters %eyond that of securing to each individual the free e/ercise of his
natural right to ac1uire all he can %y honest and moral means and of his right to the
control and disposition of all his honest ac1uisitionsA Each man has the natural right to
ac1uire all he honestly can and to en2oy and dispose of all that he honestly ac1uires5
and the protection of these rights is all that any one has a right to as4 of government in
relation to them. It is all that he can have consistently 0ith the e1ual rights of others. If
government give any individual more than this it can do it only %y ta4ing it from
others. It therefore in doing so only ro%s one of a portion of his natural 2ust and e1ual
rights in order to give to another more than his natural 2ust and e1ual rights. "o do
this is of the very essence of tyranny. *nd 0hether it %e done %y ma2orities or
minorities %y the s0ord the statute or the 2udicial decision it is e1ually and purely
usurpation despotism and oppression.
La%or is one of the means 0hich every man has a natural right to employ for the
ac1uisition of property. 9ut in order that a man may en2oy his natural right to la%or and
to ac1uire all the property that he honestly can %y it it is indispensa%le that he en2oy
fully and freely his natural right to ma4e contracts5 for it is only %y contract that he can
procure capital on 0hich to %esto0 his la%or. *nd in order that he may o%tain capital on
the %est possi%le terms it is indispensa%le that his natural right of contract %e entirely
unrestricted %y any ar%itrary legislation5 also that all the contracts he ma4es %e held
o%ligatory fully to the e/tent and only to the e/tent to 0hich according to natural la0
they can %e %inding.
9ut nearly all the positive legislation that has ever %een had in this country either on
the part of the general or state governments touching men<s right to la%or or their right
to the fruits of their la%or or their rights of contract&0hether such legislation has had
reference directly to %an4s and %an4ing to the rates of interest to insolvency and
%an4ruptcy to the distri%ution of the de%tor<s effects among his creditors or to the
o%ligation or enforcement of contracts&nearly all has %een merely an attempt to
su%stitute ar%itrary for natural la0s5 to a%olish men<s natural rights of la%or property
and contract and in their place esta%lish monopolies and privileges5 to create e/tremes
in %oth 0ealth and poverty5 to o%literate the eternal la0s of 2ustice and right and set up
the na4ed 0ill of avarice and po0er5 in short to ro% one portion of man4ind of their
la%or or the fruits of their la%or and give the plunder to the other portion.
Some of this legislation has pro%a%ly %een the result of an ignorance of natural la05 %ut
very much of it has undou%tedly %een the result of deli%erate design.
"he system proposed 0ould ta4e men<s pecuniary interests in a great measure out of
the hands of the legislative %ranch of the government and leave them to rest upon
immuta%le principles of natural la0 to %e ascertained %y the 2udiciary. If this 0ere
accomplished the ?natural inherent and inaliena%le right of individuals to ac1uire
73
possess and dispose of property@ 0ould then have at least a sem%lance of reality in
actual life5 and 0ould cease to %e treated as it no0 is as a mere privilege to %e
enlarged contracted or utterly 0ithholden as those 0ho administer the government
may ar%itrarily dictate. 9ut so long as this right is admitted to %e a su%2ect of ar%itrary
legislation so long it 0ill %e perpetually infringed invaded and denied %y innumera%le
legislative devices of the cunning and the strong 0hich a large portion of society the
ignorant the 0ea4 and the poor can neither ferret out nor resist.
If the 2udiciary should assert and maintain 'as they are constitutionally %ound to do(
the natural right of all men to ac1uire possess and dispose of property in accordance
0ith the principles of natural la0 they 0ould do such a deed for freedom humanity
and right as has never yet %een done since government 0as instituted. *nd 0hy do they
not do itA !any if not all our state constitutions declare either in form or su%stance
that ?the right to ac1uire possess and dispose of property is a natural inherent and
inaliena%le right.@ "he legal authority of this constitutional declaration is to prohi%it
and annul all legislative enactments 0hatsoever that 0ould infringe the right of any
individual to ac1uire and dispose of property on the principles of natural la0. "his
principle may not perhaps %e distinctly asserted in all our state constitutions5 %ut it is
nevertheless every0here la05 la0 %y an infinitely higher authority than constitutions
and statutes. "he right '0hether practically ac4no0ledged or not( is an ?inherent
essential inaliena%le right@ of human nature: it is the natural and necessary right of
providing for one<s o0n su%sistence5 and can no more %e surrendered to government
'0hich is %ut an association of individuals( than to a single individual. It is therefore
in the nature of things impossi%le that any government can have the right 'ho0ever it
may have the po0er( to infringe it. =hy then do not the 2udiciary sustain this
principle and annul all the ar%itrary legislation against %an4ingA against particular rates
of interestA and all the other legislation %y 0hich individuals are deprived of their
natural right to ma4e contracts naturally la0ful for the ac1uisition and disposal of
propertyA and %y 0hich a fe0 monopolists are ena%led to control so large a portion of
the la%or and capital of the communityA Is the reason to %e found in their ignoranceA
their co0ardiceA their %igotryA or in their corrupt su%serviency to the other departments
of the government from 0hom they receive their appointments and salaries and to
0hom alone they are made amena%le for their conductA
=ere the 2udiciary to assert this principle 'that is the natural right of men to ma4e all
contracts that are in their nature la0ful for the ac1uisition and disposal of property(
and carry it out in all its ramifications as they are morally and legally %ound to do
government 0ould no longer %e 0hat it no0 to a great e/tent every0here is an
organi:ed system of plunder usurpation and tyranny %y 0hich the intelligent the
rapacious and the strong continually prey upon the ignorant the 0ea4 and the poor.D
Should the 2udiciary ever ta4e this ground government 0ill then %e reduced to a very
simple and harmless affair in comparison 0ith 0hat it no0 is. *ll those innumera%le
ar%itrary conflicting and over changing legislative enactments 0hich annually come
upon us li4e visitations from some incarnated spirit of anarchy and in2ustice to elevate
depress and change the relative values of different 4inds of property 'there%y putting
into one set of poc4ets fortunes ta4en from others( and to enlarge diminish and deny
men<s natural and e1ual rights of ac1uiring their su%sistence 0ill then give place to
2udicial decisions founded upon the unchanging principles of natural la0 and affecting
76
uniformly the rights of all5 and to a fe0 simple legislative provisions for carrying these
decisions into effect.
#o reasona%le o%2ection can %e made to this doctrine on the ground that natural la0 in
its application to all possi%le cases is not already fully and a%solutely 4no0n. If it %e
not in any particular case 4no0n that is only a reason 0hy it should %e sought after
and ascertained '%y the proper tri%unal the 2udiciary5( and not 0hy it should %e
ar%itrarily set at defiance 0here it is plain and palpa%le. "he truths of mathematics are
not fully 4no0n in their application to all possi%le cases5 yet is that any reason 0hy they
should not %e adhered to so far as they are 4no0n or can %e ascertainedA Is it any
reason 0hy the ruling po0er of a state should innovate upon mathematical principles %y
legislation and enact that three and four shall %e counted as fifteen and eight and si/ as
forty5 and that the amount of men<s dues to each other shall %e determined %y such
processes as theseA *s much reason 0ould there %e in such a procedure as there is in
legislatures attempting to prescri%e men<s rights of property or their rights to the
ac1uisition of property in defiance of the principles of natural la0. #atural la0 is the
science of men<s rights as mathematics is the science of num%ers and 1uantities. It is
impossi%le in the nature of things that men can have any rights 'either of person or
property( in violation of natural la0&for natural la0 is 2ustice itself. *nd 2ustice is a
science to %e learned5 not an ar%itrary rule to %e made. "he nature of 2ustice can no
more %e altered %y legislation than the nature of num%ers can %e altered %y the same
means.
#atural la0 in regard to all human rights is capa%le of %eing ascertained 0ith nearly
a%solute certainty. "here are no +ordian 4nots in it that must %e cut %y legislation. It
has %een said 0ith very great reason and pro%a%ly 0ith entire truth that nothing
approaches so near the certainty of mathematics as the reasonings of the la0. Sir
=illiam Jones a man preKminently learned in the la0s of different nations ancient and
modern says ?It is pleasing to remar4 the similarity or rather identity of those
conclusions 0hich pure un%iased reason in all ages and nations seldom fails to dra0
in such 2uridical in1uiries as are not fettered and manacled %y positive institutions.@D
"he science of 2ustice then is in its nature certain5 and its truths are suscepti%le of
%eing ascertained to a very great e/tent as a%solutely as any other truths of an a%stract
nature. =e have also in this country greater facilities for progress in the science of the
la0 'if la0 0ere suffered to rest on natural principles( than in any other country.
Individual rights the only %asis of natural la0 are already ac4no0ledged to a greater
e/tent here than else0here. =e have also a large num%er of separate states each having
an independent 2udicature. "he decisions of these separate courts are continually coming
under e/amination in all the others. If an error is committed %y one of them through
0ant of investigation or any other cause the same 1uestion 0hen it arises in the others
is independently and more thoroughly scrutini:ed and thus the truth is nearly certain to
%e ascertained. "he science of the la0 therefore %ut for that legislation 0hich innovates
upon it and sets all natural principles at defiance 0ould %e carried further to0ards
perfection in this country than it ever has %een else0here.
If ho0ever the ar%itrary commands of legislative %odies are %etter standards of right
than the everlasting principles of 2ustice and natural la0 0hy are not the former
su%stituted for the latter in all cases 0hatsoeverA =hy do not legislatures ma4e
thorough 0or4 in demolishing o%literating and erasing everything li4e natural rightA
77
=e have still nearly 0hole %ranches of la0 on 0hich legislation has not yet dared to
lay its Vandal hand. =hy are they sparedA Is it %ecause the utter e/tinction of 2ustice
0ould defeat the purposes of rapacity itself %y not allo0ing men to produce enough to
%e 0orth the ro%%ingA -r is it %ecause 4no0ledge and conse1uent po0er have at length
%ecome so far diffused among the mass of man4ind that no very considera%le portion
of them can no0 %e reduced %y the others to un1ualified servitudeA
C)*P"ER V.
")E LE+*L #*",RE -F $E9".
"he nature of de%t and the e/tent of its moral and legal o%ligation have %een very
much misunderstood5 and from this misunderstanding and the erroneous 2udicial
decisions conse1uent thereon have resulted perpetual ruin to a large proportion of
de%tors: utter confusion and the violation of all natural la0 in regard to the rights of
creditors as against each other in the property of their de%tors5 and the destruction in a
great measure of all credit that is sound in itself and safe and %eneficial to %oth de%tor
and creditor.
"his chapter and the succeeding one 0ill attempt to prove that a de%t&such as is
evidenced %y a promissory note for instance&has no legal o%ligation and generally no
moral one %eyond the means of the de%tor to pay at the time the de%t %ecomes due.
Some illustrations 0ill hereafter %e given of cases 0here a moral o%ligation to pay may
remain after the legal one has e/pired. "he effect also of fraud fault neglect and the
violation of good faith on the part of the de%tor 0ill %e e/plained in a su%se1uent part
of the chapter. *t present the argument 0ill have reference solely to the legal o%ligation
of de%t and to cases 0here there has %een no fraud fault neglect or violation of good
faith on the part of the de%tor. "hat the de%t in such cases is legally %inding at most
%ut to the e/tent of the de%tor<s means of payment at the time the de%t %ecomes due is
proved %y the follo0ing arguments.
3. "he la0 re1uires no impossi%ilities of any man. If therefore a man contract to
perform 0hat proves to %e an impossi%ility the contract is valid only for so much as is
possi%le.
#either is a man %ound %efore he enters into a contract to 4no0 '%ecause it is
impossi%le that he should 4no0( the utmost e/tent of his a%ility5 nor to foresec
'%ecause it is impossi%le that he can foresee( all the contingencies and accidents that
may occur to defeat his purposes. )e is therefore %ound only to the faithful e/ercise of
all his po0ers and the faithful application of all his means. *s this is the most that the
de%tor can contract for the creditor is %ound to 4no0 it and of course must al0ays %e
presumed to have understood the contract su%2ect to that limitation. * creditor is
therefore as much %ound to 2udge for himself 0hether the means and a%ility of the
de%tor 0ill %e sufficient to ena%le him to fulfil his contract to the letter as is the de%tor
himself unless the de%tor do something intentionally to mislead him in his 2udgment of
them.
6. * contract to perform a manifest impossi%ility is an immoral and a%surd contract5
and a contract that is either immoral or a%surd is void from the %eginning. It has no
legal o%ligation 0hatever. *nd if a party pay value as a consideration for such a
78
contract he must lose it unless the receiver voluntarily restore it. "he la0 0ill neither
restore it to him nor compel the fulfilment of even the possi%le portion of the contract.
Every contract 0ould %e an immoral and a%surd one and therefore void from the
%eginning if it 0ere a contract to perform a particular act or to pay a particular amount
of money at a particular time at all events and 0ithout any implied reservation for
contingencies accidents and mis2udgments that may ma4e it impossi%le to fulfil the
letter of the contract. "he only 0ay therefore to ma4e any contract a moral reasona%le
and therefore valid one is to understand it su%2ect to the limitation of all contingencies
that may ma4e its fulfilment impossi%le5 and as %inding only to the e/tent of 0hat shall
%e possi%le.
If then the contract %e entered into 0ith these limitations implied it imposes no
o%ligation upon the de%tor to ma4e good out of means that he may ac1uire after the
contract shall have e/pired any short comings that 0ere occasioned not %y his fault
neglect or %ad faith %ut %y causes 0hich fi/ed a limitation upon his original lia%ility
and of 0hose effects the creditor of course too4 the ris4.D
7."ime is a material element of the contract. *ll the legal o%ligations of the contract of
necessity come to maturity at the time agreed upon for its fulfilment5 else the 0hole of
the de%t 0ould not %e due at that time. *t the maturity of its legal o%ligations it is plain
that the contract can attach only to the property then in the hands of the de%tor&for
there is nothing else for it to attach to. *nd it is plain that it can attach to nothing
ac1uired %y the de%tor su%se1uently&%ecause to allo0 it to do so 0ould %e to e/tend
the o%ligations of the contract %eyond the time to 0hich they 0ere originally limited. It
0ould %e e1uivalent to creating a ne0 contract for a ne0 period of time. -r it 0ould %e
e1uivalent to saying that the o%ligations of the contract had not come to maturity at the
time agreed upon for its fulfilment.
9ut further. *lthough the preceding considerations are sufficient to prove that a de%t has
no legal o%ligation %eyond the means of the de%tor at the time the de%t %ecomes due
they nevertheless do not convey a full and clear idea of the true nature and o%ligation
of the contract of de%t. *nd this leads to another proposition as follo0s:
8. * contract of de%t is a mere contract of %ailment differing in no essential element of
the contract from other contracts of %ailment.L
"hat it is so is easily sho0n. "hus a promise to pay money for ?value@ that has %een
?received@ is evidently a mere promise to deliver money 0hich has %een sold and paid
for5 %ecause the ?value@ that has %een ?received@ %y the de%tor is nothing else than the
e1uivalent or price paid %y the creditor for the money 0hich the de%tor promises to
deliver or pay to him.
"he right of property in this money that is to %e delivered to the creditor 'or in a
1uantum of value in the hands of the de%tor sufficient to purchase the money(
o%viously passes to its purchaser the creditor at the time he thus %uys and pays for it5
and not as is generally supposed at the time it is finally delivered or paid to him5 for it
is a%surd to say that 0hen a man has %ought and paid for a thing he does not from that
time o0n it merely %ecause it is not delivered to him at that time. * promise to deliver
or pay money especially 0hen coupled 0ith an ac4no0ledgment that the e1uivalent or
7B
price of the money promised has %een ?received@ is as good evidence that the right of
property in the money 'or in an amount of value sufficient to purchase the money( has
already passed to the purchaser as is a delivery itself.
"he o%ligation of de%t then on the part of the seller of the money arises simply from
the fact that the money 'or an amount of value sufficient to purchase the money( 0hich
he has thus sold and received his pay for and the right of property in 0hich has already
passed to the purchaser is %y agreement to remain for a time in his 'the seller<s(
hands for his use. *nd the sum of his o%ligations as a de%tor is not at all events to
preserve and deliver %ut to use due diligence to preserve and 'at the time agreed
upon( to deliver to the purchaser the money or value 0hich he has thus sold to him.
* de%tor then is a mere seller of value 'generally measured %y money( 0hich he is to
deliver to the purchaser at a time su%se1uent to the sale. *nd a creditor is a mere
purchaser of value that is to %e delivered to him 'generally in the shape of money( at a
time su%se1uent to his purchase of it.
9ut the material point to %e regarded is that the right of property in the money 'or in
the amount of value to %e measured %y money( 0hich is thus %ought and sold passes to
its purchaser %y the sale and of necessity at the time of the sale and not at the time of
final delivery as is generally supposed.
"he common error on this point vi:. that the right of property in the value thus
purchased and paid for %y the creditor does not pass to him until the final delivery of it
to him in the shape of money 'or in 0hatever other shape it may %e agreed to %e
delivered( is the source of all our erroneous notions of the nature and o%ligations of
de%t5 for if the right of property in the value purchased %y the creditor passes to him at
the time of the purchase then the seller or de%tor from that time until the time agreed
on for its delivery holds the value thus sold merely as the %ailee of the purchaser or
creditor5 and his o%ligations are only similar to the o%ligations of %ailees in other cases.
"he value itself is at the ris4 of the purchaser 'or creditor( from the time of the sale
unless it %e lost through some fault or culpa%le neglect on the part of the seller 'or
de%tor.( "he seller 'or de%tor( is only %ound to due fidelity and diligence in the
preservation of the value and not for its a%solute preservation. If it perish in his hands
or %e lost out of his hands 0ithout any fault or culpa%le neglect on his part he is not
ans0era%le. "he loss falls on the purchaser and real o0ner 0hose %ailee he 'the
de%tor( is from the time of the sale.
"he contract of de%t therefore presupposes a prior contract of sale to 0it a sale %y the
de%tor to the creditor of the money or value 0hich the de%tor is to hold for a time as
the %ailee of the creditor or purchaser.
It is important to %e %orne in mind that this contract of sale 0hich in point of la0
precedes although in point of time it is simultaneous 0ith the contract of %ailment is
in reality a sale not of the specific money promised %ut of a certain 1uantum of value
out of the de%tor<s 0hole property to 0it a 1uantum of value sufficient to produce or
purchase the amount of money promised5 and 0hich is to %e converted into money %y
the time agreed on for the delivery.
7C
"his dou%le contract of sale and %ailment of necessity implies that the de%tor has
property in his hands %oth for the sale and %ailment to attach to&other0ise there 0ould
%e no validity in either contract.D #o contract either of sale or %ailment is of any
validity unless there %e property for the contract to attach to at the time it is made. It is
in the nature of things impossi%le that a man can ma4e a contract either of %ailment or
sale that can %ind property or convey any right to property unless he have property at
the time for the contract to attach to. *ll contracts of de%t therefore 0hether morally
void or not are legally void unless the de%tor have property at the time for the
contract to attach to and %ind.L
* contract of de%t then in order to %e valid must attach to such property as the de%tor
has at the time of the contract&%ecause there is nothing else for it to attach to and it
must attach to something or %e utterly invalid. Its validity as a legal contract depends
upon its attaching to something at that time5 and of conse1uence it has no validity
%eyond the property to 0hich it then attaches 'and such as may %ecome
indistinguisha%ly mi/ed 0ith it prior to its delivery5( its validity lives only in the life of
the property to 0hich it attaches5 and 0hen the property to 0hich it attaches is
e/hausted its validity as a contract is e/hausted. "he o%ligation of the contract is
fulfilled 0hen all the property to 0hich it attaches and 0hich it %inds is delivered to
the creditor.
"his contract of %ailment or de%t differs from other contracts of %ailment in no
important particular unless in these vi:.:
3. "hat the %ailment is of a 1uantum of value&to 0it enough to purchase the amount of
money promised&e/isting in a form not designated %y the contract instead of a
%ailment of a specific thing. 9ut this is o%viously a difference of form merely and not
of principle.
6. "hat it is al0ays of a 1uantum of value that has 2ust %een sold %y the de%tor to the
creditor. Indeed the %ailment is one of the conditions of the sale. "he de%tor sells the
value to the creditor 0ith a proviso that he 'the de%tor( shall %e allo0ed to retain and
use it for a time agreed upon.
7. "hat this 1uantum of value not %eing designated or set apart %y the contract from
any other value that the de%tor may have in his hands is in reality merged in the value
of all the property that the de%tor or %ailee has in his hands.
8. "hat this value is finally to %e converted into some particular form 'generally that of
money( for delivery to the creditor or %ailor.
B. "hat the de%tor during the %ailment 0hile %esto0ing his care and la%or upon the
0hole property in his hands in 0hich the value %ailed to him is merged is allo0ed to
ta4e his necessary su%sistence out of the mass5 %y reason of 0hich it may sometimes
happen in cases of sic4ness misfortune or accident that the value %ailed may itself %e
diminished or consumed.
C. "he de%tor or %ailee is allo0ed to traffic 0ith the 0hole property in his hands and
of course 0ith the value %ailed 0hich is merged in that property.
7E
In this respect ho0ever the %ailment of de%t does not differ in principle from
%ailments to agents factors and commission merchants 0ho are authori:ed to traffic
0ith and e/change or sell the property intrusted to them. =here this is done the same
right of property 0hich the %ailor had in the original commodity %ailed attaches to the
e1uivalent 0hich the %ailee receives for it. *nd it is the same in the %ailment of de%t.
"he right of property 0hich the creditor has in the original 1uantum of value %ailed to
the de%tor follo0s that value and clings to it through all the forms and changes to
0hich the la%or and traffic of the de%tor may su%2ect it.
Some of these points 0ill %e further discussed and e/plained in the ne/t chapter.
"hat a contract of de%t is a mere contract of %ailment as has no0 %een descri%ed&that
is a mere %ailment %y the creditor to the de%tor of a 1uantum of value sold %y the
latter to the former and to %e finally delivered in the shape of money %ut in the mean
time to remain merged in the general property of the de%tor&seems to %e too nearly
self;evident to render a more ela%orate argument at this point necessary. It 0ill
ho0ever %e further discussed in the ne/t chapter.
If de%t %e %ut a %ailment the value %ailed is at the ris4 of the o0ner 'that is of the
creditor( from the time he %uys and pays for it and leaves it in the hands of the seller
or de%tor until the time agreed on for its delivery to himself. If it %e lost during this
time 0ithout any fault or culpa%le neglect on the part of the %ailee or de%tor the loss
falls on the o0ner or creditor. *ll the o%ligations of the o0ner or de%tor are fulfilled
0hen he has used such care and diligence in the preservation of the value %ailed as the
la0 re1uires of other %ailees and has delivered to the creditor or o0ner at the time
agreed upon the value %ailed or such part thereof if any as may then %e remaining in
his hands.
If such %e not the natural limit to the o%ligation of the contract of de%t then there is no
natural limit to it in any case short of the a%solute delivery of the amount mentioned5 a
limit that re1uires a de%tor to ma4e good any loss that may %efall the property of the
creditor in his hands 0hether the loss %e occasioned %y his fault or not5 and 0hether he
ever %e a%le to ma4e good the loss or not5 a limit 0hich in many cases condemns the
de%tor and his family to perpetual poverty and a lia%ility to perpetual oppression from
the creditor for a misfortune or accident to 0hich property is al0ays lia%le and for
0hich the de%tor is not morally responsi%le5 a limit very nearly allied %oth in its legal
and moral character as 0ell as in its practical effects to that 0hich in former times
re1uired the de%tor and his family to %e sold into slavery for the satisfaction of a de%t
0hich the de%tor could not other0ise pay.D
If such %e not the natural limit to the legal o%ligation of de%t&that is if de%ts %e
naturally %inding %eyond the de%tor<s means of payment 0hen the de%ts %ecome due
then all insolvent and %an4rupt la0s are palpa%le violations of the true and natural
o%ligation of de%ts and conse1uently of the rights of creditors5 such violations as no
government has the moral right 'ho0ever it may have a constitutional authority( to
perpetrate.
-n the other hand if such %e the natural limit to the legal o%ligation of de%t then 0e
have no need of insolvent or %an4rupt la0s at all for every contract of de%t involves
0ithin itself the only honest %an4rupt la0 that the case admits of.
7F
If such %e the natural limit to the o%ligation of de%t then there is as a general rule no
moral any more than legal o%ligation to pay %eyond the means of the de%tor at the time
the de%t %ecomes due5 and any su%se1uent promise to pay is gratuitous and void.L
"a4ing it for granted for the remainder of this chapter that it has no0 %een sho0n that
a de%tor is a mere %ailee of the creditor let us see some of the conse1uences that follo0
from that proposition.
3. *s a contract of de%t does not designate the specific value to 0hich it attaches in the
hands of the de%tor it cannot %e said to attach to any one part of the value in his hands
more than to another. It therefore attaches to all. *nd if it attaches to all it necessarily
operates as a lien upon all that the de%tor has in his hands at the time the de%t is
contracted5 also upon all that may %ecome indistinguisha%ly mi/ed 0ith that prior to its
delivery or payment to the creditor.D "his %eing the fact each de%t of course %ecomes a
lien in the order in 0hich it is contracted relatively to the others.L
6. * second creditor %y selling value to a de%tor and giving him credit for it 0ould
hold a lien for his de%t upon the specific value so sold to him so long as it should %e
4eptseparate and clearly distinguisha%le from the value on 0hich the prior creditor had a
lien5 %ecause the first creditor could claim a lien only on that value 0hich 0as in the
de%tor<s hands and to 0hich his contract attached at the time it 0as entered into5 and
on such other value as '%y la%or done on the property or other0ise( might %ecome
indistinguisha%ly mi/ed 0ith that prior to its delivery or payment to him 'the
creditor.(
If 9 mingle his property as grain 0ine or money for instance indistinguisha%ly 0ith
property of the same 4ind %elonging to * 0ithout the 4no0ledge of * or 0ithout any
agreement e/press or implied that in case of a diminution of the mass %y accident or
other0ise there shall %e a division of the remainder according to their original
proportions respectively the loss of any diminution that may %efall the mass falls upon
9. -n this principle if a second creditor should suffer the value 0hich he should sell to
a de%tor and on 0hich he had a lien in the hands of the de%tor to %ecome
indistinguisha%ly mi/ed 0ith value in the same de%tor<s hands on 0hich a prior
creditor had a lien and there 0ere no agreement %et0een the t0o creditors for a
division in case of loss the first creditor 0ould %e entitled to ta4e his 0hole de%t out of
the mass %efore the second creditor should receive anything5 for it could not %e
presumed 0ithout an e/press agreement that a prior creditor 0ould authori:e his
de%tor to give a second creditor an e1ual lien 0ith himself on the 0hole property in the
de%tor<s hands even though the second creditor should pay an e1ual amount of value
into the mass 0ith that paid %y the first creditor5 %ecause the first creditor might suppose
the de%tor incompetent to manage the t0o loans so advantageously or so %eneficially
for his 'the creditor<s( security as he 0ould have managed one only and might
therefore not have consented to the mi/ture of the t0o loans on the footing of e1ual
liens. "he first creditor might also thin4 it necessary for his security that the 0hole
la%or of the de%tor should %e %esto0ed on the first loan5 and might therefore have
o%2ected to the mi/ture of another loan 0ith it to ta4e an e1ual lien 0ith his o0n. *nd
especially it could not %e supposed 0ithout an e/press agreement to that effect that a
creditor 0ould have such confidence in the 2udgment of the de%tor as to %e 0illing that
he should ta4e capital from others at his 'the de%tor<s( o0n estimate of its value mi/ it
7G
0ith that received from himself and place these su%se1uent creditors on the same
footing 0ith himself as to their rights in the mass. "he first creditor 0ould 0ish an
opportunity to 2udge for himself instead of leaving it 0holly 0ith the de%tor to 2udge
0hether the value contri%uted to the mass %y the succeeding creditors 0as such as that
his security 0ould not %e 0ea4ened %y allo0ing them to share that security e1ually 0ith
himself in proportion to their de%ts.
7. If each creditor holds a lien upon the value of all the de%tor<s property in the order in
0hich their de%ts respectively 0ere contracted it 0ould of course %e fraudulent for a
de%tor to pay a second creditor %efore paying a first especially if the first should suffer
a loss in conse1uence.
For such a fraud the de%tor 0ould %e lia%le to a prosecution for s0indling and 0ould
also %e lia%le in damages if any damages should %e suffered %y the first creditor in
conse1uence of it5 and for these damages his future earnings 0ould %e lia%le forever as
in the case %efore mentioned and not merely his present property as in case of de%t.
9ut the first creditor in such a case 0ould have a right to recover of the second
creditor the amount thus fraudulently paid to the latter %y the de%tor on the ground that
he 'the second creditor( 0as not an innocent purchaser for value5 that he had merely
received on a de%t already contracted value that %elonged to a prior creditor5 and that
he 'the second creditor( not having either innocently or other0ise paid any additional
value to the de%tor as an inducement to the de%tor<s payment to him 0ould %e in no
0orse condition on restoring the value to the first creditor than he 0ould have %een if it
had not %een 0rongfully paid to him.
"his right of a prior creditor to recover of a succeeding one any value that should %e
paid to the latter in fraud of the prior creditor<s rights ta4en in conne/ion 0ith the
de%tor<s lia%ility as a s0indler and his perpetual lia%ility for any damages caused to the
prior creditor %y such fraudulent payment 0ould %e an effectual prevention of such
payments. "he principle of the prior right of the prior creditor 0ould thus %e firmly
esta%lished in practice5 all those endless frauds %y 0hich the value rightfully %elonging
to one creditor is no0 0ith impunity appropriated to the payment of another 0ould %e
prevented5 and credit 0ould %e placed on the secure %asis of each creditor<s 4no0ledge
of the property lia%le for his o0n de%t.
8. If a creditor should not demand his de%t at the time it %ecame due his neglect to do
so 0ould %e a 0aiver of his prior right to payment and 0ould ma4e it la0ful for the
de%tor to pay a su%se1uent de%t if the latter should %ecome due %efore the prior one
0as demanded.
For this reason 'as has %efore %een mentioned( the principle of the prior right of the
prior creditor 0ould %e no o%stacle to %an4ing %y the issue of notes paya%le on
demand5 nor to the payment of a su%se1uent note 0hile a prior one 0as still in
circulation&%ecause a note paya%le on demand is due as soon as it is issued and if its
payment %e not immediately demanded the neglect is a 0aiver of the right of priority.
B. If a de%t 0ere not paid immediately on its %ecoming due the creditor could not ta4e
interest for the delay out of the de%tor<s property to the in2ury of a succeeding creditor
&for interest after a de%t is due is no part of the de%t itself5 it is only the damage that
8H
is allo0ed for the detention.D "he first creditor holds a prior lien on the de%tor<s
property only for his de%t5 and not for any damage he may sustain %y reason of his de%t
not %eing paid 0hen due. "his claim for damage %eing a separate matter from the de%t
itself 0ould not legally attach to the de%tor<s property until its amount 0as legally
ascertained and ad2udged5 and it could then attach to it only in its order 0ith reference to
other claims and not to the pre2udice of any prior ones.
"he effect of this principle 0ould %e to ma4e creditors prompt to collect their de%ts
immediately on their %ecoming due especially 0hen there 0as any dou%t as to the
solvency of the de%tors&%ecause as their claims for damage 0ould not %e entitled to
the same priority as their de%ts they 0ould %e lia%le to lose them entirely or to %e
under the necessity of holding them against the de%tor until he should have made some
accumulations over and a%ove his de%ts.
9ut the de%tor 0ould choose to pay 0hen due %ecause for any damage occasioned %y
his delay 'unless the delay 0ere occasioned %y some other cause than fault on his part(
his future earnings 0ould %e lia%le as in any other case of damage occasioned %y his
fault.
C. If a creditor should not demand and in case of nonpayment sue for his de%t
immediately or at least very soon after the de%t %ecame due the delay 0ould afford a
presumption that the de%t 0as e/tinct %y reason of the de%tor<s ina%ility to pay. *nd if
at a su%se1uent time the creditor should sue for the de%t the %urden of proof 0ould
then %e upon himself to prove that at the time the de%t %ecame due the de%tor actually
had means in his hands to satisfy it.
So if a creditor should o%tain 2udgment for his de%t and that 2udgment should remain
unsatisfied for any considera%le time that fact 0ould afford a presumption of the
de%tor<s ina%ility to pay and thro0 upon the creditor the %urden of proving that at the
time the 2udgment 0as o%tained the de%tor had the means of paying it5 %ecause a
2udgment founded merely on a de%t 'and not on a 0rong( 0ould attach only to the
property that the de%tor had in his hands at the time it 0as rendered.
E. If a de%tor should %e una%le 0hen his de%t %ecame due to pay the 0hole of it it
0ould %e his duty to tender the most that it 0as in his po0er to pay. If the amount
tendered should not %e accepted in full discharge of the de%t it 0ould %e his duty to
preserve it 'for the creditor<s future acceptance( separate and distinct %oth from
su%se1uent ac1uisitions of his o0n and also from any future loans that he might
procure.
In case of a tender made %y a de%tor the creditor could after0ards o%tain 2udgment only
for the amount tendered unless he should prove&at least to the reasona%le satisfaction
of a 2ury&that the de%tor had not tendered all that it 0as in his po0er to pay. 9ut it
0ould not %e necessary for a creditor in order to o%tain 2udgment for more than the
amount tendered to prove %y actual 0itnesses of the fact that the de%tor had a larger
amount in his hands at the precise time the de%t %ecame due. It 0ould %e sufficient for
him to sho0 that the de%tor had not reasona%ly accounted for all the property that he
had had in his hands either 0hen the de%t 0as contracted or at any time previous to its
%ecoming due. For these reasons it 0ould %e important for de%tors especially for those
0ho had little or no property in their hands more than enough to pay their de%ts to 4eep
83
such accounts and vouchers of their dealings as 0ould ena%le them al0ays to account
for any losses that might happen prior to their de%ts %ecoming due.
F. If a de%tor %e merely the %ailee of his creditor then the la0s 0hich on the death of a
de%tor give the property that 0as in his hands to his family to the pre2udice of his
creditors are all void&as much so as 0ould %e la0s that should ar%itrarily give any
other men<s property to the same de%tor<s family.
G. If a de%tor %e merely the %ailee of the creditor a fine imposed upon the de%tor %y the
government as a punishment for an offence cannot %e satisfied out of property in his
hands to the pre2udice of his creditors. It can only attach to his property in its order
relatively 0ith other claims.
3H. If a de%tor %e the mere %ailee of the creditor his o%ligations in regard to the
preservation of the value %ailed to him are similar to the o%ligations of %ailees in other
cases.
"he degree of care 0hich the la0 re1uires of a %ailee for hire is that degree of care
'incapa%le of %eing measured 0ith perfect accuracy and therefore only capa%le of %eing
2udged of %y a 2ury in each case separately( 0hich reasona%le and prudent men
ordinarily ta4e of their o0n property. "he la0 ho0ever does not re1uire of a %ailee
that he possess an e1ual 2udgment 0ith other men for the management of property. "he
%ailor or o0ner of the property must ta4e the ris4 resulting from any defect of
2udgment on the part of the %ailee&for 0ea4ness of mind is no fault5 and the %ailor
therefore must 2udge for himself of the mental capacity of the %ailee %efore he entrust
his property to him. *ll that the la0 re1uires of the %ailee is that 0hatever 2udgment he
may possess %e e/ercised honestly in good faith to0ards his %ailor and 0ith such care
and diligence in the use custody and management of the property entrusted to him as
prudent men generally e/ercise in the use custody and management of their o0n
property.
In the case of a gratuitous loan the %ailee is %ound to e/ercise still greater care and
diligence in the preservation of the property %ailed than in a case of %ailment for hire.
* %ailment of de%t ho0ever differs from other %ailments in this particular to 0it that
the value %ailed is merged in and indistinguisha%ly mi/ed 0ith the general property of
the de%tor. "he de%tor must of course ta4e the necessary su%sistence of himself and
family out of the 0hole mass of property in his hands5 and hence arises an o%ligation
some0hat peculiar to this species of %ailment to 0it an o%ligation to practise such a
degree of economy and frugality in one<s mode of living as is o%viously necessary to
save the amount %ailed from consumption and ena%le the %ailee to repay the 0hole loan
to his %ailor. +ood faith re1uires this of the %ailee5 and the la0 of %ailments re1uires of
the %ailee in all cases everything that is essential to good faith. 9ut 0hat that economy
and frugality are 0hich good faith to0ards a creditor re1uires of a de%tor may depend
upon a variety of circumstances and %e very different in different cases. If for e/ample
a man o0ed %ut one thousand dollars and had ten thousand dollars of property in his
hands he could consistently 0ith good faith to0ards his creditor maintain su%stantially
the same style of living that a prudent man 0ould 0ho possessed nine thousand dollars
and o0ed no de%ts at all. -n the other hand if a de%tor had no property at all in his
hands e/cept 0hat had %een loaned to him5 and out of that and the value added to it %y
86
his la%or he 0as under the o%ligation of paying his de%t and supporting his family
good faith to0ards his creditor 0ould re1uire that he practise such a degree of economy
'a stringent frugality even 0here the case plainly demanded it( as 0ould %e li4ely to
ena%le him to accomplish %oth o%2ects5 %ecause it cannot reasona%ly %e supposed that
his creditor 0ould have loaned him the capital e/cept upon the understanding that he
should practise all the economy that 0ould %e o%viously necessary 'setting aside
unusual and une/pected contingencies( to ena%le him to repay it. #evertheless in the
case of de%t the precise measure of duty on the part of the de%tor or %ailee cannot %e
defined 0ith perfect accuracy any more than in the case of any other %ailment. *ll that
can %e said is that the de%tor is %ound to do all that good faith to0ards his creditor
re1uires under the particular circumstances of each case5 and the general rule is that a
%ailee must practise the same care diligence and economy in the management of the
property %ailed to him that prudent men generally use in the management of their o0n
property in li4e circumstances5 and the 2udgment of a 2ury is the final criterion for
determining 0hether the care diligence and economy o%served %y a %ailee have %een
such as are usually o%served %y other men.
33. If a %ailee or de%tor %e guilty of any fraud in procuring the %ailment or of any
fault culpa%le neglect or 0ant of good faith in the custody use or management of the
value %ailed 0here%y any loss should accrue to the %ailor or creditor the %ailee or
de%tor 0ill %e lia%le not on his contract %ut in an action on the case for damages5 and
for the satisfaction of these damages his future ac1uisitions 0ill %e lia%le forever and
not merely his present property as in the case of de%t. "he reason of this distinction is
that the ground of his lia%ility in the former case is a 0rong done %y him5 in the latter
a contract. For a 0rong done to another the 0rong doer can o%viously %e discharged
from his lia%ility only %y ma4ing reparation. 9ut from a contract he is discharged 0hen
he has delivered all the value 0hich the contract attaches to and %inds.
36. If a de%tor do not pay his de%t at the time it %ecomes due 'unless he have some
valid e/cuse for not paying it at that time( and all the property in his hands should
after0ards %e lost even %y accident&%y such an accident as 0ould have e/cused him
forever from the payment if it had happened %efore the de%t %ecame due&he 0ill %e
lia%le in damages 'and his future ac1uisitions %e responsi%le5( %ecause %ut for his fault
in 0ithholding the value %eyond the time agreed on for its delivery 'or payment( it
0ould not have %een e/posed to the accident %y 0hich it 0as lost. Such is the rule in
other %ailments5 and the principle 0ould apply 0ith e1ual propriety to the %ailment of
de%t.
37. If a de%tor %efore his de%t %ecomes due should use the value %ailed to him in a
manner 0holly or plainly different from 0hat could %e reasona%ly presumed to have
%een the agreement of the parties that it should %e used and the creditor should suffer
loss in conse1uence the de%tor 0ould %e lia%le in damages and his future ac1uisitions
0ill %e responsi%le.
38. If a de%tor previous to his de%t %ecoming due should commence any 0asteful
profligate or manifestly unfaithful e/penditure of the value %ailed to him 0here%y he
should %e plainly endangering his creditor<s security the creditor 0ould have a right to
the interference of a court of e1uity to restrain the de%tor and if need %e compel him to
ma4e payment of 0hat he had in his hands %efore the time agreed upon for the payment5
for all the rights of the de%tor to hold the property %y virtue of the contract are at an
87
end the moment he violates the conditions of the %ailment if the creditor choose to avail
himself of the violation to cancel the contract and recover the property %ailed.
Such are some of the leading principles dra0n from the general la0 of %ailments and
applica%le to the %ailment of de%t if de%t %e %ut a %ailment. )o0 much more %eneficial
these principles are to the interests of %oth creditors and de%tors5 ho0 much more
strongly protective of the rights of creditors and ho0 much less %ar%arous and a%surd
to0ards de%tors5 ho0 much more promotive of sound safe and generally diffused
credit than are the principles 'if ar%itrary rules that violate all principles and
ac4no0ledge none can themselves %e called principles( that are no0 acted upon %y
legislatures and courts of la0 in reference to the same su%2ects need not %e particularly
set forth5 for light and dar4ness truth and falsehood reason and a%surdity 2ustice and
in2ustice present no stronger contrasts than those t0o systems do to each other. -ne
system is founded in natural la0 and li4e all the principles of natural la0 is defensive
of all the rights and %enign in its influence upon all the la0ful interests that it reaches.
"he other is a mere relic of that %ar%arous code 'as false in theory as merciless in
practice( 0hich sold the de%tor and his family into slavery or 'in later days( doomed
him to prison li4e a felon 0henever %y reason of contingencies to 0hich all property
is lia%le and 0hich he could not foresee nor %e e/pected to foresee he proved una%le
to fulfil the letter instead of the true la0 of his contract.
It remains in this chapter to suggest the nature of the cases 0here a moral o%ligation to
pay may remain after the legal one has e/pired.
=here the contract has %een entered into %y %oth parties creditor as 0ell as de%tor 0ith
a vie0 to profit only and as a mere matter of %usiness and the loss has occurred from
the necessary ha:ards of %usiness or the contingencies to 0hich property is al0ays
lia%le and not from any fraud fault neglect or %ad faith on the part of the de%tor no
moral o%ligation 0ill remain after the legal one is e/tinct.
9ut 0here the creditor has entered into the contract and advanced capital to the de%tor
not 0ith a vie0 to profit for himself %ut as a matter of favor or 4indness to the de%tor
there a moral o%ligation 0ill remain after the legal one has e/pired5 %ecause 0e are all
under a moral o%ligation to save our friends from suffering any loss %y reason of any
4indnesses they may do for us.
*gain. =here it 0as the intention of the creditor that the only property in the hands of
the de%tor to 0hich the contract of de%t attached or could attach should %e consumed
%y the de%tor&as for e/ample 0here one man should sell food to another 0ho 0as so
destitute that he had nothing for his contract of de%t to attach to e/cept the food itself
0hich he had 2ust %ought of the creditor and 0hich it 0as the intention of the creditor
that he should eat there the moral o%ligation to pay 0ould remain after the food 0as
consumed and after the legal o%ligation of the contract 0as conse1uently e/tinct.
"here are some cases 0here there 0ould %e a moral o%ligation to pay 0here no legal
one had ever accrued at all&as for e/ample 0here a physician should render his
services to a sic4 man 0ho had no property in his hands for a legal contract of de%t to
attach to.
88
It may %e thought an o%2ection to the system here advocated that it ma4es no provision
for the legal enforcement of moral o%ligations of so palpa%le a character as those here
mentioned. 9ut the o%2ection ought to vanish 0hen it is considered ho0 very fe0 such
cases 0ould need to arise if the 0hole system of credit 0hich natural la0 authori:es
and 0hich has %een here advocated 0ere in operation5 for fe0 persons only if any
0ould then %e so destitute as to have nothing for a legal contract to attach to or as to
need to receive pecuniary assistance on such grounds as these cases contemplate.
9esides there is no more reason 0hy compensation should %e enforced %y la0 for
every 4indness of a pecuniary nature that one man does to another than for 4indnesses
of any other sort. "he honor gratitude and sense of duty of man4ind may %e safely
trusted to ma4e suita%le returns for all the 4indnesses 0hich men 0ill %e li4ely to sho0
to each other 0here they have no legal guaranty of compensation. Such is the prudent
character of men<s %enevolence generally that the num%er of such %enefits conferred
0ill not %e so great as to %ring any serious in2ury to their authors even if some of them
should actually go unre1uited. 9esides the sense of gratitude on the part of receivers is
generally commensurate 0ith the generosity of givers. "he cases 0here the former falls
short of the latter are too fe0 to %e a matter of any concern to the government.
C)*P"ER VI.
")E LE+*L #*",RE -F $E9".&'Continued.(
Some persons may not have %een convinced %y the arguments already offered that de%t
is %ut a %ailment. "he doctrine is also too important to %e dismissed 0ithout offering all
the arguments that go to sustain it. Some further e/planations of collateral 1uestions are
also necessary. "hese additional arguments and e/planations have %een reserved for a
second chapter for the reason that to many minds I apprehend they 0ill %e
unnecessary and therefore tedious5 and for the further reason that the matter 0ill %e
simplified %y presenting them separately from those in the preceding chapter.
"here remain t0o lines of argument 0hich go to prove the same point to 0it that de%t
is %ut a %ailment&and 0hich for the sa4e of distinctness 0ill %e presented separately.
It 0ill %e impossi%le in presenting them to avoid entirely a repetition of some of the
ideas already e/pressed.
FIRS" *R+,!E#".
In order to get at the true nature and o%ligation of de%t it is necessary to consider that a
promise to pay money is of no legal importance e/cept as evidence of de%t. It does not
of itself create the de%t. It only aids to prove it.
#either do the true nature and o%ligation of de%t consist in nor even rest at all upon the
merely moral o%ligation of a promise to pay. * na4ed promise to pay money is of no
o%ligation in la0 ho0ever sincere may have %een the intention of the ma4er to fulfil it.
"he legal o%ligation of de%t never arises from the fact that a man has made a promise to
pay money. It is entirely immaterial to the validity of a de%t 0hether the de%tor have
made any promise or not. "he de%t does not arise from the promise5 the promise is only
given as evidence of the de%t.
"he legal o%ligation of a de%t then is something entirely distinct from the moral
o%ligation of a promise or the moral o%ligation to 4eep one<s 0ord. "he promise is
given merely %ecause the de%t is due and as evidence that the de%t is due. It is no part
of the legal o%ligation of the de%t itself.
8B
If a promise %e made 0hen no de%t is due the promise is of no importance in la0. -n
the other hand if a de%t %e due and no promise have %een given the de%t is e1ually
valid as if a promise had %een given. "hese facts sho0 that the promise is nothing
material either to the e/istence or to the o%ligation of a de%t. * de%t may %e created
0ithout giving a promise5 and a promise may %e given 0ithout creating a de%t.
In order therefore to get at the true nature of de%t it is necessary to separate it entirely
from the idea of a promise. It is this false idea of the legal o%ligation of a promise that
interposes itself %efore our minds and prevents our seeing the true nature and o%ligation
of the de%t.
9ut it is said %y the la0yers that 0hen a man has ?received value@ as a ?consideration@
for his ?promise@ his promise is %inding. 9ut it is an entire misstatement of fact and
conveys 0holly erroneous ideas of the nature of de%t to say that the de%tor receives
value as a consideration for his promise. * man never pays a consideration for a
promise&for a promise as 0e have seen has of itself no legal o%ligation and is of no
conse1uence to the validity of a de%t. "o say therefore that a man pays a consideration
for a promise is e1uivalent to saying that a man pays his money for nothing&for that
0hich has no value of itself and is of no legal o%ligation.
If then the creditor do not pay ?value@ to the de%tor as a consideration for the de%tor<s
promise for 0hat does he pay it to himA -%viously as the consideration or price of the
thing promised&that is as the price of the e1uivalent 0hich the de%tor sells to him in
e/change. If for instance * sells to 9 a horse for an hundred dollars and ta4es 9<s
promissory note therefor he does not sell the horse for the note %ut for the hundred
dollars5 and he ta4es the note merely as evidence that he has %ought the hundred dollars
and paid an e1uivalent 'or value( for them and that they are therefore no0 his %y right
of property5 also as evidence of the time 0hen they are to %e delivered to him.
"his %rings us to a perception of the fact that the ?value received@ %y the de%tor from
the creditor and the sum or value 0hich the de%tor promises to pay or deliver to the
creditor are merely e1uivalents 0hich have %een mutually sold or e/changed for each
other.
If these e1uivalents have %een mutually sold or e/changed for each other each
e1uivalent has %ought and paid for the other5 and of necessity the right of property in
each e1uivalent passed to its purchaser at the same time that the right of property in the
other e1uivalent passed to its purchaser&that is at the time of the contract.
9ut that 0hich ma4es one of these parties the de%tor of the other 0hen there has %een
merely an e/change or a mutual purchase and sale of e1uivalents %et0een them is
simply this vi:. that the value 0hich is sold %y one of the parties to the other is %y
agreement to remain for a time in the hands of the seller for his use.
* de%tor therefore is one 0ho having sold value to another and passed the right of
property in it to the purchaser retains it for use until a time agreed upon for its delivery.
*t the end of this time the creditor can claim this value %ecause it is his he having
previously %ought it and paid for it&and not %ecause the de%tor has promised to
deliver it at that time. "he de%tor<s promise to pay or deliver this value to the creditor
8C
at the time agreed upon is not of the essence of the contract %y 0hich the creditor
ac1uired his right of property to the value promised5 and it is of no importance 0hatever
e/cept as evidence that the value thus promised to %e paid or delivered to the creditor
has %een already sold to him paid for %y him and no0 %elongs to him5 and that the
de%tor has no right to retain it for use %eyond the time 0hen he has promised to deliver
it. "he promise therefore instead of %eing evidence that the right of property in the
value promised has not passed to the creditor is only evidence that it had 'in point of
la0( passed to him %efore the promise to deliver it 0as made.
"he right of property in the value to %e paid %y the de%tor must have passed to its
purchaser the creditor at the same time that the right of property in the ?value@ paid %y
the creditor passed to its purchaser the de%tor&that is at the time of the contract5 else
the creditor 0ould have parted 0ith his ?value@ or property 'that 0hich he paid to the
de%tor( 0ithout receiving any e1uivalent for it. )e 0ould merely have received a
promise 0hich as 0e have seen is of no legal value of itself and could %e used only
as evidence. *nd it could %e used as evidence only to prove that the creditor had paid
value to the de%tor in e/change for an e1uivalent5 that he had thus %ought the
e1uivalent5 and that he 0as then of course the o0ner of the e1uivalent thus %ought and
paid for&not0ithstanding it 0ere still remaining in the hands of the de%tor.
"he promise therefore 0ould %e of no avail even as evidence unless the right of
property in the value promised to %e paid or delivered had already passed to the
creditor&for that is the only fact 'in case of de%t( 0hich the promise can %e used to
prove.
9ut perhaps it 0ill %e said 'and this is all that can %e said on the other side( that the
promise and the ac4no0ledgement of the receipt of value %y the de%tor may %e used
to prove that the creditor has paid value to the de%tor in e/change for an e1uivalent
0hich the de%tor 0as to deliver or pay to the creditor at a future time. "rue it may5 it
can %e used for that purpose and no other. 9ut that is in reality only asserting instead
of contradicting 0hat has already %een stated vi:. that the promise may %e used to
prove that the creditor has %ought value of the de%tor and paid for it5 and that it 'the
value thus %ought and paid for( is therefore no0 his 'the creditor<s( %y right of
property and has %een his ever since he %ought and paid for it to 0it ever since he paid
his value to the de%tor&for 'as has %efore %een mentioned( it is a%surd to say 0hen a
man has %ought and paid for a thing that he does not o0n it 'has not the right of
property in it( merely %ecause it 0as left for a time in the hands of the seller.
"he essential error in the common theory of de%t is that it supposes that the creditor
ac1uires no present right of property&at the time the contract is made or at the time he
pays his value to the de%tor&in the e1uivalent 0hich the de%tor promises to pay or
deliver to him5 that he only ac1uires a right of property in this e1uivalent 0hen it is
finally delivered or paid to him&0hich may %e days months or years after he has
really %ought it and paid for it. It supposes that he pays his value to the de%tor and
passes his right of property in it to the de%tor 0ithout at the time ac1uiring in return
any e1uivalent right of property in the value 0hich the de%tor is to pay or to deliver to
him.
"his error results in part in this 0ay to 0it5 %ecause the value sold %y the de%tor to the
creditor is at the time of the sale merged in the 0hole value of all the de%tor<s
8E
property and is to remain so merged until it is finally separated and converted into
money for the purpose of delivery 0e overloo4 the fact that the right of property in it
has nevertheless as much passed to the purchaser 'that is to the creditor( as if it 0ere
already separated from the mass of the de%tor<s property and delivered to the creditor.D
"his error is further strengthened %y our confounding in the first place the idea of a
promise and the o%ligation of the de%t5 and in the second place the right of property
and the delivery of the property itself. "he promise and the o%ligation of the de%t as 0e
have already seen are entirely distinct matters. So also the right of property and the
delivery of property are entirely distinct matters. #either depends at all upon the other.D
"he right of property is ac1uired 0hen it is %ought and paid for5 the delivery only gives
the o0ner the possession of 0hat 0as already his. * creditor therefore ac1uires a right
of property in the value promised to him at the time he pays his value for it&0hether
the actual delivery or payment of the value promised ta4es place at that time or months
or years after0ards. If this 0ere not so the creditor during the 0hole period %et0een
the time 0hen he pays his value to the de%tor and the time 0hen the de%tor finally
delivers or pays to him the e1uivalent value is 0ithout any right of property at all
either in the value he has parted 0ith or in the value that he is to receive for it. *nd if
he has no rights of property during all this time to either of these values he has of
necessity no rights at all in reference to them5 and never can have %y virtue of his
contract. )e only holds a promise 0hich could %e used as evidence of his rights of
property if he had any such rights5 %ut 0hich on the theory that he has no such rights
can %e of no use 0hatever.
If it %e no0 esta%lished that the value paid %y the creditor to the de%tor and the value
promised %y the de%tor to the creditor are merely e1uivalents that are mutually %ought
and sold for each other5 and if it %e also esta%lished that the right of property in each of
these e1uivalents passes to its purchaser at the same time that the right of property in
the other e1uivalent passes to its purchaser to 0it at the time of the contract instead of
at the time of delivery these facts furnish us 0ith an e/planation or definition of the
true legal o%ligation of a de%t. "hey define this o%ligation to %e the o%ligation of a seller
to preserve for and deliver to his purchaser at a time agreed upon value 0hich he has
sold him and the right of property in 0hich has already passed to him.
If this definition %e correct a de%t 'or sum due( is merely an amount of value 0hich has
%een sold %y one person to another and is to %e delivered to him at a time su%se1uent to
the sale. *nd a de%tor is merely one 0ho has sold value to another %ut retains the
custody and use of it for a time after the sale and is %ound to deliver it to the purchaser
on demand or at a future time agreed upon.
If these definitions of de%t de%tor and the o%ligation of a de%t are correct they prove
that from the time the contract '%y 0hich the de%t is created( is entered into up to the
time the value due is to %e delivered the de%tor is the mere %ailee of the creditor5 for a
man 0ho continues to hold property that he has sold to another is merely the %ailee of
the purchaser5 he is the mere holder user and hirer of the value 0hich he himself has
sold %ut not delivered5 and all the necessary conse1uences of %ailment follo05 and the
legal principles of %ailment apply. -ne of these principles as has %efore %een stated is
that if the property %ailed %e lost or in2ured during the %ailment 0ithout any fault or
culpa%le neglect on the part of the %ailee the loss falls on the %ailor or o0ner.
8F
SEC-#$ *R+,!E#".
It is a principle of natural la0 that a contract for the conveyance of property is void
unless there %e property o0ned %y the ma4er for the contract to attach to at the time it
is made. If for instance * should give to 9 a deed of a farm 0hich * did not o0n the
deed 0ould %e void. It 0ould convey no rights to 9 simply %ecause * o0ned no such
farm for the contract to attach to&or 0hat is the same thing %ecause it is in the nature
of things impossi%le that he could convey to 9 any rights 0hich he did not himself
possess. *nd even if * should after0ard %ecome the o0ner of the farm the deed that he
had previously given of it to 9 0ould give 9 no title to it. "o convey the farm to 9 a
ne0 deed 0ould have to %e given simply %ecause at the time the first deed 0as given
* had no right of property in the farm for his contract to attach to and convey. )is first
deed %eing void at the time it 0as given it could never after0ards %e made a legal
conveyance of rights su%se1uently ac1uired.
*gain. If * should ma4e a contract purporting to convey to 9 his '*<s( right as heir in
his father<s estate 0hile his father 0as yet living the contract 0ould %e void simply
%ecause 0hile his father 0as living he had no right as heir in his estate. *nd even
after his father should have died and he should have %ecome heir to his estate 9 could
not hold it under any contract that had %een made prior to *<s %ecoming entitled as heir
&all for the simple reason that at the time the contract 0as entered into there 0as no
legal right or property in * for his contract to attach to and convey. *nd if it attached to
nothing at the time it 0as entered into it never could attach to anything. #o contract
that a man can enter into at one time can in the nature of things %e made a legal
conveyance of any rights 0hich he did not then possess and 0hich he should only
ac1uire su%se1uently.
If * 0ere to give to 9 a %ill of sale of a horse 0hich he '*( did not o0n 9 0ould
ac1uire no rights to the horse %y it5 simply %ecause * had at the time no o0nership or
right to the horse that he could convey. *nd even if * should after0ards %ecome the
o0ner of the horse 9 could not hold him or claim him under the %ill of sale that had
%een previously given&solely for the reason that as there 0as no right of property in
* to the horse at the time the %ill of sale 0as given the contract 0as void. It conveyed
nothing %ecause the ma4er of it had no rights that his contract could convey. "here 0as
nothing for the contract to attach to. "he contract %eing void at the time it 0as entered
into nothing that might happen after0ards could ma4e it a valid conveyance of rights
su%se1uently ac1uired. 9 could then get the horse only %y a ne0 sale or a ne0 contract
to %e made after * had %ecome the o0ner of the horse.
In all these three cases that have %een named 0here the sale proved void for 0ant of
any right in * to the thing purported to %e sold 9 could recover %ac4 his consideration
money on the ground of its having %een paid 0ithout any e1uivalent or value received.
*nd in an action to recover it he could use the deed %ill of sale or other contract as
evidence that he had paid the consideration money5 %ut the contract itself 0ould convey
him no rights either to the land the inheritance or the horse simply %ecause * at the
time of ma4ing the contract had no rights that he could convey. *nd 9 0ould recover
his consideration money solely %ecause the grant or contract had conveyed him no
rights.
"hese cases are put simply to illustrate the principle that a contract for the conveyance
of property is void and conveys no rights 0hatever to the grantee unless the grantor %e
8G
the possessor at the time the contract is entered into of the rights his contract purports
to convey. *ny su%se1uent o0nership that he may ac1uire is not transferred to the
grantee %y any contract made previous to his %ecoming the o0ner. "here %eing in the
grantor at the time the grant is made no such rights as the contract purports to convey
the contract is void inoperative5 and %eing void at that time nothing can give it validity
at a future time. It can only %e used as evidence that the grantee has paid his money
0ithout consideration and ought to recover it %ac4. *nd if he 0ishes to ac1uire the
specific property contracted for 0henever it may after0ards happen to come into the
hands of the grantor he must do it %y a ne0 contract&the old one %eing a%solutely
inert lifeless invalid for any purpose of a conveyance. *nd it is e1ually invalid so far
as any conveyance of rights is concerned 0hether the grantee have actually recovered
his consideration money or not. It may %e useful as evidence to ena%le the grantee to
recover the money he has paid5 %ut it is incapa%le of any validity as a conveyance.
"he force and 2ustness of this principle 0ill %e more clearly seen 0hen it is considered
0hat a contract really is. It is merely a consent agreement assent&a mere operation of
the mind. "he 0ritten instrument called a contract is only the evidence of the mental
contract or consent. It has no validity other0ise than as such evidence. "he only really
material matter is the mental operation or assent.D #o0 this mental e/ercise or assent
can o%viously produce no effect e/cept 0hile it is in action. It must therefore pass the
right of property then or never. If 0hile it is in action the right of property %e in the
person 0ho e/periences this assent the assent passes the right of property to another.
9ut if the right of property %e not in him 0hile e/periencing this sensation of assent
the sensation accomplishes nothing %ecause there is nothing on 0hich it can operate.
*nd if the person should ever after %ecome the proprietor of the thing to %e conveyed
he must e/perience the sensation again in order to ma4e the conveyance %ecause his
former consent 0as of no force e/cept 0hile it continued.
"his principle %eing esta%lished that a contract for the conveyance of property has no
legal force or validity as a conveyance&that is that it attaches to nothing and conveys
no right to anything&unless the ma4er at the time the contract is made %e the o0ner of
the rights he purports to convey let us apply the principle to the case of a promissory
note.
* promissory note is a contract 'or more accurately spea4ing the evidence of a
contract( for the conveyance of property&that is of money. It is a %ill of sale of money
that has %een sold and paid for and is to %e delivered at a future time. It differs in some
particulars from the contracts 2ust mentioned in regard to land a horse >c.5 %ut it does
not differ from them in any particular that is essential to the principle 2ust stated to 0it
that a contract for the conveyance of property attaches only to the property that a man
has 0hen the contract is entered into&'and of conse1uence to such other property as
may %ecome indistinguisha%ly mi/ed 0ith it prior to the delivery.( "he rights 0hich a
creditor ac1uires %y a promissory note 'or %y the contract of 0hich the note is the
evidence( are rights 0hich attach to the de%tor<s property the moment the contract is
entered into even though the money is not to %e delivered for months or years
after0ard. *nd if the de%tor have no property for the contract to attach to at the time
the contract is entered into the contract is void and can never after0ards attach to
anything. *nd this is on the same principle that a deed of a farm attaches to the farm
from the moment the deed is made and that the right of property in the farm passes at
that moment from the seller to the %uyer even though the possession of the farm is %y
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agreement not to %e delivered for months or years after0ards. So also a %ill of sale of a
horse attaches to the horse and the right of property in the horse passes from the seller
to the %uyer at the moment the contract of sale is entered into even though the horse %y
agreement is not to %e delivered until a su%se1uent time. -n the same principle the
right conveyed %y a promissory note '0hich is merely a contract for the sale and
delivery of money( attaches to the de%tor<s property and the lien passes to the creditor
at the moment the contract is entered into even though the money is not to %e delivered
until months or years su%se1uent. "he right of the creditor must attach at the time the
contract is entered into or for the reasons already given it can never attach at all5 and
0ould therefore convey no rights at all to the creditor.
"he principal points in 0hich a deed of land or a %ill of sale of a horse '0here the
possession is to %e delivered at a time su%se1uent to the contract( differs from a
promissory note are these:
3. * deed of land or a %ill of sale of a horse necessarily descri%es or designates a
particular piece of land or a particular horse5 and it necessarily applies or attaches only
to the one so descri%ed %ecause there is and can %e no other precisely li4e it. 9at a
promissory note does not descri%e the particular dollars that are sold or are to %e
delivered %ut only the num%er of them. It therefore does not apply or attach to any
particular dollars5 and it is not necessary that it should %ecause all dollars are of e1ual
value and therefore it is immaterial 0hat particular dollars shall %e delivered.
6. *s a promissory note does not descri%e or designate the identical dollars sold it
cannot apply or attach to any particular dollars any more than to any other dollars that
the de%tor may have.
7. *s a promissory note does not descri%e designate or attach to any particular dollars
in preference to others it does not imply that the identical dollars that are finally to %e
delivered no0 e/ist in the hands of the de%tor. *nd if it does not imply that those
identical dollars no0 e/ist in the hands of the de%tor it does not even imply that the
amount of value 0hich the dollars contain or 'in other 0ords( the amount of value
0hich the note conveys no0 e/ists 'in the hands of the de%tor( of the de%tor( in the
shape of dollars any more than that it e/ists in any other particular shape from 0hich it
can %y the time agreed on for the delivery %e converted into the particular dollars that
shall finally %e delivered or into any dollars that the de%tor may have a right to deliver
in fulfilment of his contract. *s the note does not descri%e or designate the identical
dollars that are sold %y the contract it does not imply or descri%e the particular shape
in 0hich the amount of value sold no0 e/ists5 for if it do not imply that it e/ists in the
shape of the identical dollars that are to %e delivered it does not imply that it e/ists in
the shape of any other dollars any more than that it e/ists in the shape of corn 0ool or
iron. It only implies therefore that it e/ists 'that is that the amount or value conveyed
%y the note e/ists( in the hands of the de%tor in some shape or other from 0hich it is
suscepti%le of %eing converted into dollars %y the time agreed on for the delivery.
8. *s the note does not descri%e the particular shape in 0hich the value conveyed %y it
no0 e/ists and does not even imply that it no0 e/ists in the shape of dollars the note
is in effect a lien upon all a man<s property for the num%er of dollars mentioned in the
note5 or it is a sale of so much value e/isting in some shape or other as 0ill procure or
e/change for the num%er of dollars mentioned in the note rather than a sale of any
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particular dollars themselves. "hat such is the fact is evident from t0o considerations
to 0it5 first that the identical dollars sold are not descri%ed and therefore cannot %e
4no0n5 and secondly that the de%tor is to have the use of them until the time agreed
upon for the delivery. *s the dollars 0hile remaining in the specific shape of dollars
can %e of no use to the de%tor and can %e used %y him only %y converting them into
other commodities and as they are to %e left in his hands for a certain time solely that
he may use them it follo0s that it must have %een the intention of the parties that the
de%tor should have the right of converting them into other commodities that might %e
productive or suscepti%le of use in the mean time & that is until the time of delivery5
and therefore that the creditor should have his lien upon them or upon an amount of
value e1uivalent to them into 0hatever shape they might %e converted or through
0hatever changes they might pass previous to delivery5 and that in time for the
delivery this amount or value 0as to %e converted again into dollars for that purpose.D
B. *s the contract to %e of any validity 'that is to convey any rights( must from the
moment it is entered into attach to something or other in the hands of the de%tor5 and as
it does not designate or therefore purport to attach to the identical dollars that are to %e
delivered it can only attach to the general property of the de%tor as a lien for the
num%er of dollars to %e delivered. ,nless it thus attach to the general property of the
de%tor as a lien it 0ould of necessity %e a nullity having no legal operation 0hatever
simply %ecause there is nothing else for it to attach to.
* promissory note therefore for an hundred dollars to %e delivered at a future time is
in reality a contract of sale of so much value e/isting in some shape or other in the
hands of the de%tor as 0ill produce an hundred dollars. Such a contract is in effect a
lien for that amount upon a man<s 0hole property even though his 0hole property
should %e e1ual to an hundred times that amount & and 0hyA 9ecause as the particular
amount of value or property to 0hich the contract attaches is not descri%ed or set off
distinctly from the rest of his property the de%tor can never sho0 as long as any
portion of his property remains in his hands and the de%t is unpaid that the portion
remaining in his hands is not the portion that 0as sold and promised to %e delivered.
9esides if %y the time of delivery it shall appear that all his property has disappeared
e/cept a single hundred dollars it is more reasona%le to suppose that he has disposed of
his o0n property than that he has disposed of that to 0hich his creditor had on
e1uita%le right.
* promissory note then for an hundred dollars is a mere %ill of sale of an hundred
dollars that are to %e delivered at a future time5 or rather a %ill of sale of so much value
'no0 e/isting or presumed to e/ist in some other shape than that of the identical
dollars 0hich are to %e delivered( as 0ill purchase an hundred dollars at the time agreed
upon for the delivery. *lthough then a promissory note difers from a %ill of sale of a
horse or a deed of land in not descri%ing or designating the identical dollars sold and
therefore in not attaching to any particular dollars 0hich the de%tor may have on hand at
the time the contract is entered into it is nevertheless precisely li4e a %ill of sale of a
horse or a deed of land in this respect to 0it that the rights of the creditor attach from
the moment the contract is made to an amount of value 'e/isting in the hands of the
de%tor in some shape or other( sufficient to produce or %e converted into the num%er
of dollars mentioned in the note.
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9ut perhaps some may %e disposed to deny that there is any such analogy as I have
supposed %et0een a promissory note and a deed of land or a %ill of sale of a horse5 or
any analogy that ma4es it necessary that there should %e any property in actual
e/istence for the contract e/pressed in the note to attach to. *nd perhaps they 0ill say
that the different form of a promissory note from that of a deed or %ill of sale & the
former %eing a ?promise to pay@ at a future time and the t0o latter %eing e/press grants
in the present tense & implies that the note conveys no such present right of property to
the payee as a deed does to the grantee or a %ill of sale to the vendee.
"o see the fallacy of this o%2ection it is necessary to get rid of 0ords and get at ideas5
or rather to get rid of that confusion of ideas 0hich results from the ha%it of ar%itrarily
using different 0ords to convey the same essential ideas. For instance. =e ?pay@ money
for a horse and 0e ?sell@ a horse for money & such is the common use of 0ords. .et
in reality 0e as much ?pay@ the horse for the money as the money for the horse. *nd
0e as much sell the money for the horse as the horse for the money. "he horse %uys the
money as much as the money %uys the horse. "he horse and the money are e1uivalents
0hich are mutually e/changed for each other5 0hich mutually %uy each other5 0hich are
mutually sold for each other5 0hich mutually pay for each other. In every e/change of
e1uivalents of this 4ind there are t0o purchases and t0o sales. -ne of the parties sells
his horse for money the other his money for a horse. -ne of the parties %uys a horse
0ith money the other %uys money 0ith a horse. *nd this is the 0hole matter.
=hen therefore a man sells a horse for money and promises to deliver the horse at a
future time the contract is of precisely the same essential nature as 0here a man sells
money for a horse and promises to deliver or ?pay@ the money at a future time. "he
horse and the money are the e1uivalents that are e/changed for each other5 that is the
right of property in each is e/changed for the right of property in the other. *nd the
right of property in each e1uivalent passes at the same instant that the right of property
in the other e1uivalent passes & else the contract is not reciprocal mutual or e1ual and
one of the parties receives no e1uivalent or consideration for the property he sells. *nd
it is of no conse1uence 0hen the delivery either of the horse or of the money actually
ta4es place & 0hether in a month or a year after the contract & or 0hether the delivery
of %oth e1uivalents ta4es place at one and the same time or not. "he right of property in
%oth e1uivalents passes at the time of the contract 0hether the delivery of either or %oth
ta4es place then or not. "he delivery is a mere incident to the contract and is of no
importance in itself as affecting the rights of property 0hich each of the parties has
ac1uired %y the contract. *fter the contract is made the horse %elongs to its purchaser
as much %efore it is delivered to him as after0ards5 and %y the same rule the money
%elongs to its purchaser as much %efore it is delivered or ?paid@ to him as after0ard.
"he same is true in regard to the sale of land. "he right of property in the land passes at
the time the contract is made or the deed given though the possession of the land itself
%e not delivered until a su%se1uent time. *nd of conse1uence the right of property in
the e1uivalent the consideration the money for 0hich the land is sold or e/changed
passes also at the time of the contract though this e1uivalent or money itself %e not
delivered or paid until a su%se1uent time&else the contract 0ould not %e mutual
reciprocal or e1ual and the seller of the land 0ould have parted 0ith his right of
property in the land 0ithout receiving any consideration therefor&that is 0ithout
receiving any e1uivalent right of property in e/change. "he delivery of money then on
a note or contract made previously to the delivery corresponds 0ith a delivery of the
possession of land on a deed that has %een previously given. "he delivery has nothing
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to do 0ith the right of property in either case&for that 'the right of property( has
previously passed to 0it at the time the contract 0as entered into.
=hat 0e call ?paying@ money on a note is the mere delivery of money that has %een
previously sold and paid for and the right of property in 0hich has previously passed to
the purchaser. *nd it is solely %ecause the money has %een previously sold and paid for
and the right of property in it has passed to the purchaser that the money itself is paid
or delivered. It is %ecause the money has %een previously %ought %y another and
therefore %elongs to him is o0ned %y him is in fact his property that it is paid or
delivered to him. If it %e not paid to him for this reason or if it %e not his property
%efore it is delivered the delivery is a gratuity5 it is 0hat he cannot claim as a right&for
plainly a man cannot claim on a contract that property %e delivered or paid to him as
his unless he has %y the contract first ac1uired the o0nership of it.
Contract rights to things then are actual %ona fide rights of property in and to the
things contracted for. #o other intelligi%le meaning can %e given of contract rights to
things. * right to a mere promise or a merely moral claim to the fulfilment of a
promise is nothing in la0. "he la0 that governs men<s title to property cannot ta4e
notice of any such uncertain intangi%le and speculative rights as that of a merely
moral claim to the fulfilment of a promise if such a claim 'depending as it may upon
a thousand contingencies not in their nature suscepti%le of proof( can %e called a right.
"he la0 in regard to property can ta4e notice of nothing less delinite certain or
tangi%le than actual proprietary rights in actual e/isting things. *nd unless a man
ac1uire a right of property in a thing %y his contract he ac1uires legally spea4ing no
right at all %y his contract. "here is no other legal right to or in things that he can
ac1uire %y contract. *nd this proprietary right is ac1uired&in all cases 0hen it is
ac1uired at all&the moment the contract is made5 0hether it %e agreed that the delivery
shall ta4e place at that or a future time. *nd this principle applies as 0ell to money that
is sold for a horse or for land and is agreed to %e delivered or paid at a future time as
it does to land or a horse that is sold for money and is agreed to %e delivered at a
future time.D
9ut perhaps it 0ill %e said that the 0ords ?I promise@ 0hich are contained in the note
are not contained in the %ill of sale of a horse or deed of land5 and that these 0ords
indicate some essential difference in the nature of these different contracts.
9ut the 0ords ?I promise@ are no essential part of the contract. #or is a formal promise
in any case essential to the validity of a de%t&that is to the o%ligation to deliver money
that has %een sold and paid for. * man may ma4e as many na4ed promises to pay
money as he pleases and they are of no o%ligation in la0. -n the other hand if a man
have received value from another 0ith the understanding that it is not a gift or that an
e1uivalent is to %e paid for it the de%t is o%ligatory&that is the o%ligation to deliver
the e1uivalent is %inding&0hether there %e any formal promise to pay or not. "his 0e
see in the case of goods sold and charged on account. *nd the o%ligation to deliver the
e1uivalent consists in this&that it 'the e1uivalent or money( has %een %ought and paid
for and no0 actually %elongs to the creditor or purchaser as a matter of property. "he
promise then is a matter of mere form in any case and of no importance to the validity
of an o%ligation to deliver an e1uivalent that has %y contract 'consent( %een
e/changed for value that has %een received. It may %e important as evidence of the
contract5 %ut it is no part of the contract itself5 that is it of itself conveys no rights of
B8
property to the promisee and no rights of any 4ind to the e1uivalent promised 0hich
he 0ould not have 0ithout any formal promise.
9ut it may %e said 'and this is the language of the la0yers( that 0here a man has paid a
consideration for a promise there the promise is %inding. 9ut the truth is 'as has %efore
%een stated( that a man never pays a consideration for a promise. )e simply pays an
e1uivalent a price or consideration for the thing promised. *nd his right of property to
the thing promised of course attaches at the time of the contract&at the time he pays
the e1uivalent for it&or it can never attach at all. *nd then the promise to deliver or
pay it 'the thing promised( is made solely as evidence that it 'the thing promised( has
%een sold and no0 %elongs to the promisee as a matter of property.
* promissory note then that is given for money is in its essence precisely li4e a %ill
of sale that is given of a horse and that contains an agreement to deliver the horse at a
future time5 or it is precisely li4e a deed that is given of land and that em%races an
agreement or memorandum that the possession of the land is to %e given at a future
time. "he language of these three contracts are in their legal purport essentially the
same. For instance. "he promissory note runs thus.
?"hirty days from date I promise to pay *. 9. one hundred dollars for value received.@
Signed C. $.
"he %ill of sale runs thus.
?*. 9. %ought of C. $. one horse to %e delivered in thirty days from date. Received
payment.@ Signed C. $.
"he deed of land runs thus.
?In consideration of one hundred dollars paid %y * 9 the receipt of 0hich is here%y
ac4no0ledged I here%y grant sell and convey to * 9 one acre of land possession to
%e delivered in thirty days from the date hereof.@ Signed C. $.
=hat difference is there in these three contracts so far as a conveyance of proprietary
rights to the thing promised to %e paid or delivered is concernedA -%viously none
0hatever. "he %ill of sale says in su%stance that the horse has %een sold and that the
?payment@ the value or the e1uivalent has %een ?received5@ and that the horse&
0hich having %een thus sold and paid for no0 of course %elongs to the purchaser&is
to %e delivered to him in thirty days. "he deed says that the land is sold and its
e1uivalent or ?consideration@ has %een ?paid@ and ?received5@ and that the possession
of the land&'0hich having %een thus sold and paid for no0 of course %elongs to the
purchaser(&is to %e given in thirty days. "he note says that the ?value@&that is the
e1uivalent the ?payment@ the ?consideration@ for the money promised has %een
?received@ '0hich implies that the money promised has %een sold and no0 %elongs to
the purchaser( and that the money is to %e delivered or paid in thirty days.
=hat possi%le ground is there for saying that the right of property in the land or in the
horse is conveyed %y the contract e/pressed in the foregoing deed or %ill of sale and
that the right of property in the money 'or in an amount of value sufficient to purchase
BB
the money( is not conveyed %y the contract e/pressed in the noteA #one none
0hatever.
Suppose * and 9 should ma4e a contract 0ith each other for the e/change&or 0hat is
the same thing for the mutual purchase and sale&of an hundred dollars in money and
a horse5 that is * should sell to 9 a horse for an hundred dollars in money and 9
should sell to * an hundred dollars in money for a horse5 and that %oth the money and
the horse are to %e delivered in thirty days from the time of the contract. "he promise of
one 0ould %e to ?pay@ the money in thirty days and of the other to ?deliver@ the horse
in thirty days. .et do not these mutual promises or underta4ings mean precisely the
same thingA *nd is not the contract on the part of each precisely the same throughout
that it is on the part of the otherA "he horse is the e1uivalent of the money and the
money of the horse. "he money is sold for the horse as much as the horse is sold for the
money. *nd the horse %uys the money as much as the money %uys the horse. "he
%argain is reciprocal and e1ual in every respect. "he mutual purchase and sale have
%een a mere e/change of the rights of property in certain values or e1uivalents. =hy
then attach a different meaning to the 0ord ?pay@ 0hen applied to the money from
0hat 0e attach to the 0ord ?deliver@ 0hen applied to the horseA =hy say that the right
of property in the horse passes to the purchaser of the horse at the time of the contract
%ut that the right of property in the money 'or in an amount of value sufficient to
purchase the money( does not pass to the purchaser of the money until the delivery
thirty days after0ardsA Clearly there is no reason for it. Evidently the right of property
in one e1uivalent passes at the same time that the right of property in the other
e1uivalent passes to 0it at the time of the contract 0ithout any regard to the time of
the delivery.
"he real e1uita%le %ona fide right of property in each of these articles 'the horse and
the money( is e/changed %y the contract and therefore necessarily passes at the time of
the contract. "he possession merely of each remains 0ith the seller for thirty days. *ll
0ill agree that the right of property in the horse passes at the time of the contract and
that the possession merely remains 0ith the seller during the thirty days. =hy does not
the right of property in the hundred dollars 'or in an amount of value e1uivalent to the
hundred dollars( pass e1ually at the time of the contract and the possession merely
remain 0ith the seller of the money for thirty daysA "he mutual purchase and sale of the
horse and the money is a mere e/change of e1uivalents&a reciprocal and e1ual
contract5 and precisely the same rights of property 0hich pass to the purchaser of the
horse pass also to the purchaser of the money. Certainly if the right of property in the
horse passes to the purchaser of the horse %y force of the contract and at the time of
the contract the same right of property in the money passes also to the purchaser of the
money %y force of the contract and at the time of the contract. #o proposition in la0
it seems to me can %e more self;evident than this.
=ell then supposing this point to %e esta%lished that the right of property in money
that is promised&or rather in an amount of value e/isting in some shape or other in
the hands of the de%tor sufficient to purchase the amount of money promised&passes
to its purchaser at the time the contract is entered into instead of the time of delivery&
0hat follo0sA
BC
From the time that property is sold until it is delivered the seller is the mere %ailee of
the purchaser5 and the property itself is at the ris4 of the purchaser unless the seller %e
guilty of some fault or culpa%le neglect in regard to the custody or use of it.
For instance. In the case %efore supposed 0here * sells to 9 a horse for an hundred
dollars giving him a %ill of sale thereof5 and 9 sells to * an hundred dollars for the
horse giving him a promissory note therefor&the horse and money to %e each
delivered to their respective purchasers in thirty days from the time of the contract&*
holds the custody of the horse for those thirty days as the %ailee of 9. *nd if the horse
during those thirty days die %e stolen or other0ise lost or in2ured %y any of the
casualties to 0hich horses are lia%le 0ithout any fault or culpa%le negligence on the
part of * the loss falls upon 9 the purchaser. *ll la0yers 0ill agree that this is the la0
in regard to the horse. -n the same principle then that * is the mere %ailee of the horse
for those thirty days 9 is the mere %ailee of the money 'or of an amount of value
e1uivalent to the money( during the same time5 that is this money or value remains in
the hands of 9 for his use the real o0nership %eing in *5 and if the money during the
thirty days that it is to remain in the hands of 9 for his use %e lost %y fire or theft or
any of the accidents or any of the casualties of trade to 0hich money is lia%le 0ithout
any fault or culpa%le negligence on the part of 9 the loss falls upon * the purchaser
and real o0ner of the money. Clearly the same principles apply to %oth the articles
horse and money. "he right of property in each has %een e/changed for the right of
property in the other5 and the custody and use of each are to remain 0ith its seller for
thirty days. Each purchaser of course ta4es the same ris4 as the other of the
commodity he has purchased 0hile it remains in the hands of its seller.
If * the seller of the horse 0hile the horse remains in his possession after the sale
should use it in any mode different from 0hat it 0as understood that he should use it5 or
should neglect to ta4e such reasona%le care in the use and treatment of the horse as
good faith to0ards the o0ner of the horse re1uired of him5 and should there%y %e the
cause of in2ury or death to the horse he 'the seller( 0ould %e still lia%le for the value of
the horse5 not ho0ever on his contract nor in an action of trover for the horse itself
%ut in an action on the case for damages for the loss occasioned %y his fault as has
%efore %een e/plained. 9y the same rule if 9 the seller of the money 0hile it remained
in his possession should intentionally or negligently e/pose it to any other than the
usual ris4s to 0hich it 0as understood that it 0as to %e e/posed and there%y the money
should %e lost then he 'the seller of the money( 0ould %e still lia%le to the o0ner of it
for the amount5 not ho0ever on his contract nor in an action of trover for the money
itself %ut in an action on the case for damages for the loss occasioned %y his fault.D
9ut if * the seller of the horse used the horse 0ith such reasona%le care 0hile it
remained in his possession after the sale as the la0 of %ailments and good faith to0ards
95 the o0ner of the horse re1uired of him and the horse nevertheless came to in2ury
or death 9 the purchaser and o0ner of the horse must %ear the loss. 9y the same rule
if 9 the seller of the money use such care in the preservation and management of it
0hile it remains in his possession after the sale as the la0 of %ailments and good faith
to0ards * the purchaser of the money re1uire of him and it 'the money( should
nevertheless %e diminished or lost * the purchaser and real o0ner of the money must
%ear the loss.
BE
#o0 the only o%2ection 0hich the la0yers 0ill raise to this doctrine or to the
application of the principles of %ailee and %ailor to the cases of de%tor and creditor is
simply this: "hey 0ill say that the specific property to 0hich the contract of de%t 'at the
time it is entered into( attaches may %efore the time agreed on for the delivery %e
e/changed %y the de%tor for other property5 and that the same contract 0hich attached
to the original property cannot attach to the ne0 property for 0hich that is e/changed.
"hey get this false idea from loo4ing solely at the general rule in regard to %ailments
and 4eeping the e/ceptions and 1ualifications to the rule out of sight5 0hen in fact
these e/ceptions and 1ualifications cover nearly or 1uite as many cases in actual life as
the rule itself. For instance: the general rule in %ailments is that the specific thing
loaned or entrusted to the %ailee is to %e restored to the %ailor. "he e/ceptions or
1ualifications are 0here there is either an e/press or implied authority given to the
%ailee to e/change the property %ailed for something else. =herever there is either an
e/press or implied authority given to the %ailee to ma4e such e/change the same right
of property 0hich the %ailor had in the original commodity %ailed attaches to the ne0
commodity or e1uivalent for 0hich that has %een e/changed. In the cases of the
various 4inds of commercial agencies 0here the agent is entrusted 0ith commodities of
one 4ind to %e e/changed %y him for money or other commodities the right of
property in the money or other commodities received %y the %ailee as the e1uivalent of
the commodities %ailed vests in the %ailor on the instant of the e/change and never
%ecomes vested in the %ailee. In many perhaps in the larger num%er of cases of
commercial agencies the %ailee receives e/press anthority for ma4ing the e/change5 %ut
not in all nor nearly all. In many cases the authority is implied from collateral facts.
*nd an implied authority is as good in la0 in any case 0hatever as an e/press
authority. *ll that is necessary is that there %e valid grounds for the implication.
Considering then the relations of de%tor and creditor to %e those of %ailee or %ailor are
there any valid grounds for the implication of an authority from the creditor to the
de%tor to e/change and traffic 0ith the property %ailed or loaned to the de%torA
"here are several.
3. Inasmuch as the contract ma4es no designation of the particular form in 0hich the
value to 0hich the contract attaches e/ists at the time the contract is entered into it of
course prescri%es no particular form in 0hich it must e/ist at any time e/cept at the
time of delivery 0hen it must %e in money. Since then there is in the contract no
e/press or implied re1uirement that the de%tor shall retain the value in any particular
form it impliedly allo0s him to use all reasona%le discretion as to the form in 0hich it
0ill %e e/pedient to 4eep it. *nd such a discretion allo0s him to convert it %y
e/changes into such different forms as a prudent and careful man might reasona%ly
deem %eneficial. ,nless he 0ere allo0ed this discretion he 0ould not %e allo0ed to
convert it from a perisha%le commodity into a dura%le one5 nor from an unproductive
into a productive one.
6. "he capital loaned is loaned to %e used. "his must al0ays %e presumed %ecause no
other reasona%le motive for the loan can %e supposed. *nd if it %e loaned to %e used
and the form in 0hich it is to %e used is neither e/pressed nor implied %y the contract
'as is the case in the instance of a promissory note( it must %e presumed that it 0as
intended %y the creditor that the de%tor should use it in such manner as prudent men
BF
use their o0n capital. *nd as the ha%it of prudent men is to convert their o0n capital %y
e/changes or traffic from one form into another5 and as in many 4inds of %usiness
they are o%liged to do so to derive any profit from their capital it must al0ays %e
presumed 'in the a%sence of any e/press or implied prohi%ition( that the de%tor 0as to
%e allo0ed the same discretion in the management of the loan and in converting it from
one form into another %y traffic as prudent men e/ercise in the management of their
o0n capital.
7. "he contract of de%t never descri%es the particular form in 0hich the amount of
value to 0hich the contract attaches e/ists at the time the contract of %ailment or de%t
is entered into5 %ut only the form in 0hich it is finally to %e delivered to 0it that of
money. "he contract therefore only implies that the amount of value e/ists in some
shape or other in the hands of the de%tor. If therefore the de%tor have not money for
the contract to attach to at the time it is entered into it must attach to value e/isting in
some other form else it 0ould attach to nothing and therefore %e void. =hen then the
contract does attach to value e/isting in some other form than money it certainly
implies an authority to e/change the commodities 'in 0hich the value is invested( for
money at least if for nothing else5 %ecause the contract e/pressly prescri%es that the
value to 0hich the contract attaches shall finally %e delivered to the creditor in the shape
of money and the de%tor therefore could not fulfil his contract unless he could
convert this value into money. *nd if the de%tor is authori:ed to convert into money the
value to 0hich the contract attaches there is no reason that I 4no0 of 0hy he has not
all fair and reasona%le discretion as to the mode of converting it into money5 nor 0hy he
may not do it %y means of half a do:en intermediate e/changes if he thin4s he can thus
do it more advantageously.
8. If the value to 0hich the contract attaches do e/ist in the shape of money at the time
the contract is entered into 'as in the case 0here money itself is loaned and the de%tor
has no other property than the loan for the contract to attach to( then the contract
certainly implies an authority to e/change that money for other commodities and those
commodities %ac4 into money5 %ecause the money is o%viously loaned to %e used5 as is
proved %y the facts that no other reasona%le motive for the loan can %e supposed and
that in most cases the de%tor agrees to pay interest for its use 0hich he could not
afford to do unless the money 0ere to %e made productive to him. #o0 money itself can
neither %e used nor made productive in any other 0ay than %y %eing e/changed for
other commodities or %y %eing 0rought into some other shape than coin. "hese facts
then are enough to prove that it must have %een the intention of the lender or %ailor
that the %orro0er or %ailee should %e at li%erty to e/change the money loaned for other
commodities. *nd then the fact that the amount of value promised to %e paid to the
creditor is finally to %e delivered to him in the shape of money proves that the de%tor
has the consent of the creditor to convert these other commodities %ac4 into money
again.
=hether therefore the contract of de%t attach at the time it is entered into either to
value e/isting in the shape of money or to value e/isting in any other shape 'not
designated in the contract( the contract and the collateral facts imply an authority to the
de%tor to traffic 0ith the property or value to 0hich the contract attaches. *nd if this %e
the fact then the rights of the creditor or %ailor follo0 this value and cling to it in
every form that it may pass through in the hands of the de%tor from the time the
BG
contract is made until it is finally delivered or repaid to him 'the creditor( in the shape
of money.
If it have no0 %een sho0n that the true relation su%sisting %et0een de%tor and creditor
is merely the relation of %ailee and %ailor5 that a de%tor is merely one 0ho has sold
value to another and retains the possession and use of it for a time after the sale5 and
that the legal o%ligation of the de%tor to pay money and the legal purport of his promise
to pay money for value that he has received are merely an o%ligation and promise to
deliver money 0hich he has sold and received his pay for and the right of property in
0hich has already passed to the creditor it follo0s that the creditor<s right ac1uired %y
his contract attaches to nothing e/cept to such property as actually e/isted in the hands
of the de%tor for the contract to attach to at the time the contract 0as made and to such
other value as may have %ecome indistinguisha%ly mi/ed 0ith it %et0een that time and
the time agreed upon for its delivery or payment. *nd from these several propositions it
also follo0s that at the time a de%t %ecomes due a creditor has no claims %y virtue of
his contract upon anything e/cept 0hat remains of the property that he purchased %y
his contract and upon such other value or property as may have %ecome
indistinguisha%ly mi/ed 0ith it 'unless the de%tor have %een guilty of some fault or
culpa%le neglect in the use or custody of it 0here%y it has %een diminished or lost.(
"he utmost e/tent therefore of the creditor<s claim '0hen the de%tor has %een guilty of
no fault neglect or %ad faith in the custody or use of the property loaned to him( is to
the property actually e/isting in the hands of the de%tor at the time the de%t %ecomes
due. )e has a prima facie claim to the 0hole of thisD if it %e necessary for the
satisfaction of his de%t. 9ut if it %e insufficient for the satisfaction of his de%t&that is if
his purchase have %een diminished in value or amount 0hile in the custody of the
de%tor '0ithout any fault or culpa%le neglect on the part of the de%tor(&he the
creditor must %ear the loss. "he contract is e/tinct fulfilled on the delivery of 0hatever
remains of the property originally %ailed to the de%ator. *nd if the 0hole of the value
%ailed have %een lost 0ithout the fault of the de%tor the loss falls on the creditor.
"here is no escape from this conclusion %ut %y denying that the contract attached to
anything at the time it 0as made. *nd such a denial instead of proving that the de%t
0as o%ligatory %eyond the de%tor<s means of payment 0ould only %e e1uivalent to a
denial that it ever had any legal validity at all. In order to maintain the validity of the
contract 0e must maintain that it attached to something&that is that it conveyed to the
creditor a proprietory right to some value e/isting in the hands of the de%tor at the time
the contract 0as entered into. *nd if the contract had any validity&that is if it attached
to anything&at the time it 0as entered into its validity lived only in the life of the
value or property to 0hich it attached5 and 0hen that value e/pired or %ecame e/tinct
the contract or in other 0ords all the rights 0hich the creditor ac1uired %y virtue of his
contract necessarily e/pired 0ith it.
"a4ing it for granted that it has no0 %een sho0n that a de%tor is in la0 the mere %ailee
of his creditor it may %e important to repeat the statement of the principle %y 0hich
this %ailment operates as a lien upon the 0hole property of the de%tor even though his
property %e many times greater than the de%t. "he principle is this. Suppose the de%t to
%e one hundred dollars5 and the 0hole amount of property in the hands of the de%tor to
%e one thousand dollars. "he contract attaches to and %inds so much value or property
in the hands of the de%tor as 0ill %ring one hundred dollars. 9ut the contract does not
CH
designate the particular form in 0hich the value or property to 0hich it attaches
e/ists. It therefore attaches to it in every form as it e/ists in the hands of the de%tor5
simply %ecause it cannot %e sho0n that it attaches to that 0hich e/ists in one form any
more than to that 0hich e/ists in another form. *ny portion therefore of the de%tor<s
property or the 0hole of it if it should %e necessary is lia%le to %e ta4en for the
satisfaction of the de%t5 and this lia%ility of the 0hole ma4es the de%t a lien upon the
0hole. It is on this principle that a mortgage on land for %ut a tenth part of the actual
value of the land is a lien upon the 0hole.
* promissory note or other personal de%t 0here there is no designation of the
particular articles of property to 0hich the contract attaches is in fact a sale of all the
property the de%tor has in his hands su%2ect to his right of cancelling the sale %y paying
the amount of the de%t in money 2ust as a mortgage is a sale of the land mortgaged
su%2ect to the right of the de%tor to cancel the sale %y paying in money the amount for
0hich the mortgage is given.
In other 0ords a contract of de%t 0ithout any designation of the specific property to
0hich the contract attaches is a contract %y 0hich the de%tor pledges his 0hole
property for the delivery or payment of the amount sold out of it to the creditor vi:.
the amount of the de%t. Such a pledge gives the creditor a special or conditional
o0nership of the 0hole property pledged5 and the de%tor thenceforth holds the 0hole
property as the %ailee of that portion of its value 0hich actually %elongs to the creditor
and is merged in the value of his 'the de%tor<s( 0hole property.
If the point %e no0 esta%lished that a de%t is a lien upon the 0hole property of the
de%tor5 and if the de%tor is the mere %ailee of the amount of value sold and %elonging to
the creditor it %ecomes necessary to sho0 on 0hat grounds it is that the de%tor has the
right to appropriate for his su%sistence any portion of the property on 0hich his
creditor holds a lien. =here a de%tor has mortgaged land to his creditor he 'the de%tor(
has no right to sell any portion of that land not even to provide himself 0ith food. =hy
is it different in the case of the lien created %y a personal de%t upon the 0hole property
of the de%torA "he reason is that there is an implied permission given %y the creditor to
the de%tor to appropriate enough of the property in his hands for his su%sistence&
su%2ect to the condition that the de%tor shall apply his care and la%or to the increase and
preservation of that property. "his permission is to %e implied from the follo0ing facts:
3. It is a self;evident fact that the de%tor and his family must live5 and %eing a self;
evident fact it must have %een ta4en for granted %y the creditor as a part of the contract
&%ecause all self;evident facts having any %earing on the contracts are ta4en for
granted in all la0ful contracts.
6. If the de%tor and his family must live it is self;evident that they must derive their
su%sistence either %y selling their la%or for 0ages 'independently of any property in
their hands5( or %y %esto0ing their care and la%or upon the property in their hands and
ta4ing their su%sistence out of it and its proceeds.
#o0 it is evident that the contract does not contemplate that the de%tor is to sell his
la%or for 0ages to the neglect or disuse of the property loaned to him5 for the only
reasona%le motive that can %e supposed for the loan is that the de%tor may use the
capital loaned that is that he may %esto0 his la%or upon it. *nd if he %esto0 his la%or
C3
upon it it follo0s that he must mean0hile ta4e his su%sistence out of it&%ecause 0hile
%esto0ing his la%or upon it he cannot %e selling his la%or for 0ages and of
conse1uence cannot derive his su%sistence in any other 0ay than from the property in
his hands. *nd as the creditor<s lien e/tends to all the property in his hands it follo0s
that the de%tor must ta4e his su%sistence out of that to 0hich the lien attaches&simply
%ecause there is no other property in his hands for him to ta4e it out of.
In all this there is a strong analogy to the case of a lien on land&for there the de%tor
ta4es the produce of the land for his su%sistence5 0hich is hardly distinguisha%le in fact
and is not distinguisha%le in principle from ta4ing the land itself&inasmuch as the
crops e/haust the fertility and consume the value of the land.
7. "he contract evidently supposes that the de%tor 0hile la%oring is to have enough of
the fruit of his la%or for his su%sistence '%ecause a man cannot la%or 0ithout a
su%sistence5( that his la%or is to %e %esto0ed upon the capital on 0hich the creditor has
a lien5 and of course that the value of his la%or is to %ecome incorporated
indistinguisha%ly 0ith that of the capital. It follo0s that it must have %een understood
%oth %y de%tor and creditor as a self;evident matter that the de%tor 0hile la%oring
should appropriate enough of the property in his hands for his su%sistence %ecause
0ithout his su%sistence he could not %esto0 his la%or upon the capital.
8. "he nature of the contract proves that the creditor is interested in the la%or of the
de%tor %ecause at a given time he 'the creditor( is to receive the capital loaned 0ith
increase. "his of course the de%tor could not afford nor the creditor e/pect unless the
de%tor 0ere to %esto0 his la%or upon the capital. *nd if he %esto0 his la%or upon the
capital he must of necessity have his su%sistence mean0hile. *nd as his contract is a
lien upon everything in his hands it must of necessity have %een understood that he
should appropriate his su%sistence out of the property that is su%2ect to the lien.
In short the contract proceeds throughout upon the supposition that the su%sistence of
the la%orer 0hile la%oring on capital must %e provided for out of the capital on 0hich
he la%ors. *nd this supposition is not merely a reasona%le %ut it is a necessary one&for
it is o%vious that his su%sistence must %e thus provided for 0hether he hold the relation
of de%tor to the capitalist or that of a la%orer for 0ages. In either case his su%sistence
0hile la%oring must %e a ta/ upon the capital on 0hich he la%ors.
In all this there is nothing that authori:es 0aste or prodigality on the part of the de%tor5
or that authori:es anything e/cept 0hat is consistent 0ith such economy and frugality as
good faith to0ards the creditor re1uires. 9ut this point has %een sufficiently e/plained
in the preceding chapter.
)alting at this point and loo4ing %ac4 upon the ground 0e have gone over does not
that ground present a more rational vie0 of the nature of de%t than any that has ever
%een practised upon %y courts of la0A Is it not the only vie0 that can ma4e the contract
of de%t consistent either 0ith morality or 0ith the ideu that creditors ac1uire any
tangi%le legal rights to actual things %y virtue of that contractA
"his vie0 of the contract of de%t places the de%tor and creditor to a certain e/tent in
the relation of partners. "he creditor furnishes capital the de%tor la%or. "he separate
values of this capital and la%or %ecome indistinguisha%ly mi/ed&that is the la%or
C6
%esto0ed upon the capital adds to its value %y converting it into ne0 forms&as for
instance %y converting leather into shoes. "he de%tor 0hile thus %esto0ing his la%or
upon the capital receives his su%sistence out of the mass5 in other 0ords his
su%sistence 0hile la%oring is the first charge 'as in all cases it necessarily must %e(
upon the com%ined capital and la%or. "he creditor holds the ne/t lien upon this
com%ined capital and la%or for the amount of his investment and his stipulated profits.
"he de%tor is entitled to the residue if any there %e as the re0ard of his la%or. $uring
the partnership the creditor holds the de%tor to the o%servance of economy and good
faith. ,nder these circumstances %oth parties ta4e the natural ris4s of the %usiness. "he
creditor ris4s his capital the de%tor his la%or.D
*ll this is o%viously a 2oint operation a %ona fide partnership. "he creditor as 0ell as
the de%tor is to derive a profit from it. "he prospect of profit is the creditor<s only
motive for entering into the contract. "he de%tor therefore %ecomes a %ailee not
merely for the %enefit of himself %ut also for the %enefit of the creditor. =hat is there in
morality or in the legal rights of the parties to the capital and la%or thus com%ined that
re1uires the de%tor to ta4e the ris4 %oth of his o0n la%or and of the creditor<s capital
%eyond the due e/ercise of his s4ill industry care and good faith in the preservation
and management of the latterA
"he creditor adopts this mode of employing his capital as %eing the most advantageous
to himself. )e has more capital than his o0n la%or can advantageously employ. )e
must therefore in order to ma4e his capital productive either loan it to others or
employ the la%or of others upon it %y hiring them and paying them 0ages. )e
considers that %y loaning it and offering the de%tor an inducement to the e/ercise of his
%est s4ill %y a contract that gives to the de%tor all the proceeds of the 2oint la%or and
capital e/cept a stipulated amount 'called interest( he 0ill %etter stimulate the
la%orer<s industry s4ill and care and thus reap a %etter profit to himself than he 0ill if
he hire the man as a la%orer for 0ages. *nd this is the reason 0hy he loans his capital
instead of hiring the la%or necessary to employ it. 9ut there is nothing in all this that
morally or legally entitles his capital&0hile it is in the hands to 0hich he has thus 0ith
a vie0 to his o0n profit chosen temporarily to entrust it&to an insurance against the
necessary ris4s to 0hich capital is al0ays lia%le. #or is there anything in all this that
morally or legally entitles him to ma4e this %ailee and partner his slave for life in case
of any misfortune to the partnership %usiness %y 0hich %oth his capital and the de%tor<s
la%or should %e lost. #or is there in all this anything that gives him any tangi%le legal
proprietary rights to property that his partner and %ailee may earn after the partnership
or %ailment shall have terminated.
MD N -ne of the greatest&pro%a%ly the greatest&of all the evils resulting from the
e/isting system of privileged corporations for %an4ing purposes is that these
incorporations amass or %ring together and place under the control of a single directory
the loana%le capital that 0as previously scattered over the country in small amounts in
the hands of a large num%er of separate o0ners. If this capital had %een suffered to
remain thus scattered it 0ould have %een loaned %y the separate o0ners in small sums
to a large num%er of persons5 each of 0hom 0ould thus have %een supplied 0ith capital
sufficient to employ his o0n hands upon 0ith the means of controlling his o0n la%or
and there%y of securing to himself all the fruits of his la%or e/cept 0hat he should pay
as interest. 9ut 0hen all this scattered capital is collected into one heap and placed
under the control of a single directory it is usually loaned in large sums to a fe0
C7
individuals&generally to the directors themselves and a fe0 other favorites. It pro%a%ly
is not loaned to one tenth one t0entieth or one fiftieth as many different persons as it
0ould have %een if it had %een suffered to remain in its original state and had %een
loaned %y its separate o0ners. Individuals instead of %orro0ing one t0o three or five
hundred dollars to employ their o0n hands upon as 0ould %e the case %ut for these
incorporations of capital no0 %orro0 fives tens and hundreds of thousands of dollars
upon 0hich to employ the la%or of others. "his process of concentration monopoly and
incorporation %y means of 0hich one man a director or a favorite of a %an4 is ena%led
to %orro0 capital enough to employ the la%or of ten t0enty or an hundred men of
course deprives ten t0enty or an hundred other men of the a%ility to %orro0 even
capital enough to employ their o0n hands upon. -f conse1uence it compels them to sell
their la%or to him 0ho has monopoli:ed the capital. *nd they must sell their la%or to
him at a price that 0ill give him a profit&generally a large profit. "hat is they must sell
it for much less than the amount of 0ealth it produces. In this 0ay ten t0enty or an
hundred men are literally ro%%ed of an important portion of the fruits of their la%or
solely that a single monopolist may %e gorged 0ith 0ealth. It is thus that the legislation
0hich creates these large incorporations of privileged %an4ers operates to plunder the
many of the fruits of their la%or and pamper the fe0 0ith the spoils.
MD N !utual %enefit is the only foundation for the morality of contracts5 or at least to %e
moral a contract should contemplate no in2ury to either party.
MD N If the capitalist 0ere to hire his la%or instead of the la%orer hiring the capital the
su%sistence of the la%orer 0ould still %e as much a charge upon the capital as it is 0hen
the la%orer hires the capital and ma4es his o0n living the first charge upon the 2oint
proceeds of the capital and la%or.
MD N "here is of course some sympathy %et0een all men for a common nature compels
it5 %ut it is not 1uic4 or strong %et0een opposite classes or strangers as it is %et0een
similar classes and ac1uaintances.
MD N "he 2udiciary pro%a%ly 0ould assert this principle in this country 'and under a
system of universal suffrage they 0ould %e sustained in doing it( 0ere it not that %y
our constitutions they are placed in a great measure %eyond the reach of either the
appro%ation or censure of the people at large and made dependent upon and the mere
creatures of the very departments 0hose usurpations they are in theory designed to
restrain. "hey receive their offices and salaries from and are made amena%le %y
impeachment solely to the other departments5 and as might %e e/pected they servilely
and corruptly sustain all their ar%itrary measures in defiance of all the moral and
constitutional o%ligations they are really under in the premises.
*lthough the natural rights of all men to ac1uire possess and dispose of property&
0hich of course involves the right to ma4e all the contracts naturally la0ful %y 0hich
property may %e ac1uired or disposed of&is so clearly announced in most of our
constitutions5 although as a principle of natural la0 it is too manifest to %e dou%ted or
denied5 although it is a right in its nature vital to the 0ell %eing and even to the self;
preservation of every man5 and although all our statute 9oo4s a%ound 0ith enactments
infringing denying or 0ithholding this right on the part of a greater or less portion of
the people5 it is nevertheless hardly pro%a%le that a single one of all these thousand
enactments has ever yet encountered the veto of the 2udiciary. =hat a sic4ening proof
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this of the degradation corruption and servility of that %ranch of the government
0hich holds all our rights in its hands.
"he 2udiciary should %e made entirely independent of the e/ecutive and legislative
%ranches of the government. "hey should neither receive their appointments nor salaries
from them5 nor %e amena%le to them %y impeachment. =e might then hope that they
0ould act as a chec4 upon their usurpations instead of acting as they generally do no0
as mere pimps and panders to them lending the covering of their sanction to hide the
crimes of the legislatures from the eyes of the victims. Judges should %e elected %y the
people5 for short terms5 their salaries should %e fi/ed %y the constitutions5 and they
should %e amena%le %y impeachment to independent tri%unals specially instituted for
the purpose. "hey should also %e separately chosen at separate periods and %y separate
districts of the people&that no party ho0ever po0erful in the nation or in the state
might %e a%le to choose the 0hole of the 2udiciary.
"he 2udiciary is altogether the most important department of the government5 or rather
0ould %e so if it 0ere properly constituted. Indeed if 2udges 0ere %ut honest and
capa%le there 0ould %e very little for the legislative department to do in regard to
property e/cept to provide the means for carrying the decisions of the 2udiciary into
effect.
MD N Jones on 9ailments p. 377.
MD N * promissory note has %een defined to %e ?a 0ritten promise to pay money
a%solutely and at all events.@ '9ailey on 9ills p. 3. Oent<s Commentaries Lect. 83.(
*nd courts no0 act on that theory and on the theory that such a contract is %inding. 9ut
if such 0ere the legal meaning of the contract it 0ould plainly %e an immoral a%surd
and therefore void contract&of no legal o%ligation 0hatever.
ML N * %ailment is 0here one person is temporarily intrusted 0ith the property of
another either for safe 4eeping as in the case of a special deposit5 or to %e used as in
the case of a horse lent for a 2ourney5 or to %e sold as in the case of goods intrusted to a
commission merchant5 or for some other purpose5 under an agreement e/press or
implied that he 0ill comply 0ith the conditions on 0hich it is intrusted to him and
finally restore it to the o0ner 'or its e1uivalent if it %e sold( or other0ise dispose of it
agreea%ly to the o0ner<s directions. "he o0ner is called the %ailor&the person
intrusted the %ailee. If the property %e lost or in2ured in the hands of the %ailee 0ithout
any fault or culpa%le neglect on his part the loss falls on the o0ner.
MD N "he value sold %y the de%tor to the creditor may often %e the same ?value@ 0hich
he has 2ust ?received@ of the creditor. It must %e the same 0here the de%tor has no other
property. 9ut 0here he has other property the value that he sells to the creditor is
merged in the value of his 0hole property and continues so until it is finally separated
from it to %e delivered to the creditor.
ML N -n this point more hereafter.
MD N "o say that value entrusted to a de%tor 0as lost through his incapacity for the
2udicious management of it 'as it often really is instead of %y accident( ma4es the case
no stronger in favor of the perpetual lia%ility of the de%tor5 %ecause a 0ant of capacity is
CB
nothing for 0hich the de%tor is culpa%le or for 0hich he can rightfully %e held lia%le.
"he creditor therefore must 2udge for himself and must al0ays %e presumed to have
2udged for himself and to have ta4en the ris4 of the de%tor<s capacity or incapacity
%efore he entrusted his property to him. *ll he could e/pect or have a right to re1uire of
the de%tor 0as the faithful e/ercise of 0hatever capacity he possessed. It is neither
policy e1uity nor la0 that a man shall %e protected against the legitimate
conse1uences of his o0n negligence or %e permitted to thro0 them even upon another
person e1ually negligent5 much less upon an innocent person. "he la0 re1uires
diligence of all. "his principle therefore for%ids that a creditor 0ho has %een so
negligent as to entrust his property to an incompetent de%tor should hold the de%tor
responsi%le for its loss 0hen the latter has faithfully e/ercised his %est a%ility for its
preservation.
ML N I shall hereafter have occasion to spea4 of the e/ceptions to this rule and to sho0 in
0hat cases a moral o%ligation to pay may remain after the legal one has e/pired.
MD N "his point 0ill %e more fully esta%lished in the ne/t chapter.
ML N "hat is each de%t %ecomes a lien in the order in 0hich it is contracted if the de%tor
practise no fraud. 9ut if a de%tor should fraudulently conceal a former de%t 0hen
contracting a succeeding one the first creditor might there%y lose his prior lien and the
second creditor %ecome entitled to it in preference to him. "he principle on 0hich the
de%tor<s fraud 0ould have this effect against the rights of his first creditor is this.
Possession is prima facie evidence of property. "here is no e/ception to this rule unless
in cases of real estate 0here legislation has su%stituted pu%lic records for possession
as evidence of property. "here %eing no e/ception to the rule as to personal property all
persons are %ound to 4no0 it and govern themselves accordingly. If therefore * put
his personal property into the hands of 9&no matter on 0hat private agreement
%et0een themselves 0hether on the %ailment of de%t or any other %ailment&he
there%y virtually and legally asserts to the 0orld that 9 is the o0ner of it5 and he
cannot retract that assertion to the in2ury of any third person 0ho has %een deceived %y
it or 0ho has purchased 0ithout notice of the contrary and actually paid value for the
property. "he sale 0ill therefore %e a valid one to the purchaser and the original
o0ner can loo4 only to his %ailce for the damages.
"his principle ma4es it necessary that the o0ner of property should ta4e upon himself
the ris4 'as he evidently ought( of any dishonest sales of it %y those to 0hom he
voluntarily intrusts it and 0hom he holds out to the 0orld as the o0ners instead of
ena%ling him to thro0 this ris4 upon innocent and ignorant purchasers 0ho proceed
according to la0 in presuming '0here they are not informed or put upon in1uiry to the
contrary( that the one having the property in his possession is the true o0ner of it.
-n this principle a second de%t '0hich involves a safe of value in the de%tor<s hands(
contracted %y concealing from the creditor the e/istence of a former de%t might %e
valid against the prior creditor and operate as a prior lien on the de%tor<s property.
9ut there 0ould %e little or no danger of such transactions5 %ecause first the ha%it of
o%taining credit is so general as to serve as reasona%le notice to put creditors on
in1uiry5 and every creditor 0ould therefore %e %ound either to ta4e the ris4 of any prior
de%ts or to ma4e special in1uiry of his de%tor %efore giving him credit 0hether he
CC
0ere already in de%tA If his de%tor 0ere to ans0er falsely and there%y induce him to
give him credit on the idea that his 'the de%tor<s( property 0as free from any prior lien
the act 0ould %e one of s0indling to0ards the prior creditor and 0ould %e properly
punisha%le as s0indling especially if the prior creditor should suffer any actual harm
from the second lien5 and perhaps it 0ould %e the same if he did not suffer any. "he
case 0ould %e parallel to that of a man 0ho after having given one mortgage of land
should after0ards %efore that mortgage 0as recorded give another mortgage to another
person 0ho had no 4no0ledge of the first mortgage5 and should there%y deprive the
first mortgagee of his prior lien.
$e%tors 0ould have little or no temptation to practise such frauds5 for it 0ould not only
ma4e them lia%le as s0indlers %ut also lia%le in damages 0here any actual loss should
%e suffered %y the first creditor5 and for these damages their future earnings 0ould %e
lia%le forever as 0ill hereafter %e sho0n and not merely their present property as in
case of de%t. If therefore a de%tor should %e una%le to o%tain a second credit on
account of the lien of a prior one on his property his true course 0ould %e to do the %est
he could 0ith the means in his hands until his present de%t should come to maturity
then pay it or pay to the e/tent of his a%ility and thus cancel it. )e 0ould then %e free
to contract a ne0 one.
It perhaps might %e e/pedient for de%tors 0hen contracting second de%ts to ta4e
0ritten ac4no0ledgments from their creditors that their former de%ts 'naming them(
0ere disclosed to them. "his 0ould put it out of the po0er of creditors to impute fraud
to their de%tors5 and 0ould also prevent any collision %et0een creditors as to the order
of their respective rights. Pro%a%ly ho0ever this precaution 0ould %e unnecessary for
the %urden of proof 0ould al0ays %e upon the second creditor to sho0 the fraudulent
concealment and not upon the de%tor to prove his disclosure or that no disclosure 0as
as4ed. "he second creditor<s o0n testimony 0ould %e inadmissi%le to give himself a
prior lien5 and uncorro%orated it 0ould %e suspicious testimony even in a criminal
prosecution for s0indling. "he pro%a%ility therefore is that for 0ant of proof of any
fraud if for no other reason there 0ould %e no collision among creditors as to the order
of their respective liens unless second creditors at the time of giving credit should ta4e
0ritten declarations from their de%tors that there 0ere no prior liens on their property.
*nd de%tors 0ould not of course dare to put false declarations of that 4ind in 0riting
%ecause they 0ould there%y convict themselves of s0indling. So that there 0ould %e no
collision among creditors on this ground unless in some fe0 cases 0here de%tors might
%e such open villains as to put their fraudulent representations in 0riting.
"he principle stated in this note 0ould %e no o%stacle to a de%tor<s selling or
e/changing any property in his hands for an e1uivalent value of a different 4ind
provided he should act according to his %est 2udgment and 0ith no intent to lessen the
value of his creditor<s security5 %ecause the lien of his creditor is not a special lien on
specific articles of property 'none such %eing designated %y the contract( %ut upon the
amount of value that inheres in all the property in his hands&0hich value he has an
implied authority from the creditor to convert into different forms %y la%or and traffic
at his discretion 'as 0ill %e more fully sho0n in the ne/t chapter.( *nd 0hen he sells an
article for money or ma4es an e/change of it for another commodity the e/change is a
mere conversion of the same value into a different form. "he creditor<s right attaches to
it or adheres to it in its ne0 form in the same manner and to the same e/tent that it
did in its original one.
CE
MD N -gden vs. Saunders 36 =heaton p. 78H.
MD N Suppose * sells to 9 and receives his pay for an hundred %ushels of grain out of a
certain mass consisting of a thousand %ushels5 and * promises that he 0ill separate the
hundred %ushels from the mass in 0hich they are merged and deliver them to 9 in one
month from the time of the contract. In this case the right of property in the hundred
%ushels passes to 9 the purchaser at the time of the contract&and if the mass should
%e destroyed %efore the delivery '0ithout any fault on the part of *( the loss of the
hundred %ushels 0ould fall upon 9 the purchaser and o0ner of them. *nd this is %ut a
parallel to the case of de%t 0here * should sell to 9 and receive his pay for an
hundred dollars< 0orth of yalue out of his '*<s( 0hole estate5 and should promise that
this hundred dollars< 0orth of value should %e separated from the mass of his estate 'in
0hich it is merged( converted into money and delivered to 9 the purchaser 'or
creditor( in one month from the time of the contract. In this case as in the case of the
grain the right of property in the hundred dollars< 0orth of value 0ould pass to 9 the
purchaser of it at the time of the contract5 and if the 0hole estate of * in 0hich 9<s
hundred dollars< 0orth of value 0as merged should then %e lost or destroyed prior to
the delivery 0ithout any fault or culpa%le neglect on the part of * 'the %ailee or
de%tor( the loss of the hundred dollars< 0orth of value 0ould fall upon 9 the purchaser
and o0ner of it.
MD N "he delivery may sometimes %e important as evidence of the right of property
0hen there is no other evidence of it. 9ut it is of no importance to the right itself if the
right can %e proved %y any other testimony. *nd a promise to deliver property and an
ac4no0ledgment that the property has %een paid for 'as in the case of a promissory
note( are as good evidence that the right of property has passed to the promisee as is
the delivery itself.
MD N "he validity of this assent for the conveyance of property results from the facts
that men have an inherent right to dispose of their property5 that they can dispose of it
only %y the consent or assent of their minds or 0ills to do so5 and that conse1uently
0henever this consent or assent ta4es place it actually passes the right of property 'in
the thing to 0hich it applies( to the person to 0hom the proprietor designs it to go. It is
truo the la0 re1uires some out0ard manifestation of this assent&such as a delivery of
the thing sold or a 0ritten or oral contract as proof of it&%efore it 'the la0( 0ill
declare that the right of property has actually passed to another5 %ut this is re1uired not
%ecause the out0ard manifestation is of any intrinsic importance %ut %ecause 0e can
have no evidence of a man<s mental sensations e/cept from some out0ard e/hi%ition of
them.
MD N *lthough a deed of land or a %ill of sale of a horse may contain an agreement that
the possession shall remain in the seller for a time5 and although such an agreement
0ould imply that the horse or farm 0as left in his possession to %e used %y him still it
0ould not as in the case of a note 'or %ill of sale of dollars( imply that the horse or
farm might in the mean time %e converted into any other shape for use or %e
e/changed for any other commodity5 %ecause the horse and farm unli4e the money are
productive and useful in their present shape.
CF
MD N It 0ill %e understood 0hen I say that the right of property in the ?money@ passes to
the purchaser at the time it is sold or contracted for 'though not delivered until a future
time( that I mean not the right of property in the identical pieces of money that are to
%e delivered or paid %ut 'for the reasons heretofore given( the right of property in an
amount of value e/isting in some shape or other in the de%tor<s hands e1uivalent to
the money and 0hich is to %e converted into money in time for the delivery.
MD N "his distinction %et0een the lia%ility of a de%tor on his contract for the money
itself and his lia%ility for the same amount in an action on the case for damage 0here
the loss has %een occasioned %y his fault or negligence is an important one in several
respects as regards %oth de%tors and creditors 'as has heretofore %een sho0n(
not0ithstanding the amount recovera%le in each case should %e the same.
MD N "his prima facie claim may %e defeated as to any particular property in the hands of
the de%tor clearly distinguisha%le from the %ul4 of his property and 0hich the de%tor
can sho0 to have %een either loaned or given to him since his de%t 0as created.
MD N "hat is he ris4s his la%or all over and a%ove his necessary su%sistence 0hile
la%oring5 0hich is no more than the capitalist 0ould %e o%liged to ris4 if he hired his
la%or5 and 0hich therefore is not entitled to %e considered as a ris4 created %y the loan.
CG